Building for the Next 100 Years Nestlé India Limited • Annual Report 2016

Nestlé India Limited • Annual Report 2016

Building for the Next 100 Years The Board of Directors of Nestlé India Limited

(From left to right)

Shobinder Duggal (Director - Finance & Control and CFO) Ravinder Narain (Non Executive Director) Rajya Vardhan Kanoria (Non Executive Director) Ashok Kumar Mahindra (Non Executive Director) Rakesh Mohan (Non Executive Director) Aristides Protonotarios (Director - Technical) Swati A. Piramal (Non Executive Director) B. Murli (SVP - Legal & Company Secretary) Suresh Narayanan (Chairman & Managing Director)

Index

Message to Shareholders 03 Annexures to the Board’s Report Commitment to Make in India 04 Commitment to Consumers 06 Annexure 1: Report on Corporate 69 Annexure 5: Secretarial 93 Commitment to Business Partners 08 Governance Audit Report Commitment to Society 10 Annexure 2: 78 Annexure 6: Extract of Annual 96 Commitment to Environment 12 Remuneration Policy Return Commitment to our People 14 Annexure 3: Annual Report on 79 Annexure 7: Report on Conservation 106 Corporate Information 16 CSR Activities of Energy etc. Board’s Report 17 Annexure 4: Business Responsibility Annexure 8: Information Regarding Auditors’ Report 33 83 109 Report Employees and Related Disclosures Annual Accounts 38 Dividend Distribution Policy 110 Across this vast vibrant country that is India, there is a trust that we have developed starting 1912 and is still growing.

Every day millions of Indians wake up to the taste of our products. We touch the lives of millions each day and are a part of Indian lives.

Today we are part of the social fabric of the country. And, we are creating value that can be sustained over the long term for the Company as well as for the Society.

Dear Shareholders

The year gone by has been a challenging, exciting, Our commitment towards the communities where at times a stressful one, but has been underlined we operate also remained steadfast. One of our by a deep sense of satisfaction. We are a large and key initiatives last year was #EducateTheGirlChild respected food and beverage Company globally and programme that was run in partnership with Nanhi are very proud of the over 100 years of heritage Kali, one of the largest community programs in India. 2016 will always remain a very important imparting education to underprivileged girl children year in the history of Nestlé India as the Company across India. This initiative further strengthened the bounced back to business after the MAGGI Noodles Nestlé Healthy Kids Programme which has already incident. I would like to refl ect upon the powerful reached out to more than 1,00,000 benefi ciaries. sense of purpose that drove our Company and the Believing in the power of our brands to make social underlying value of respect, decency and trust that impact, we changed the packaging of three of our manifested in all our relationships, both internal and most iconic brands to sensitize and draw attention external. It is therefore only appropriate that to the fact that society needs to embrace collective I congratulate all our employees and partners for their responsibility in ensuring that more girls have the belief in the Company, synchronising with its values opportunity to pursue education. This initiative of and delivering on the promise of getting back on using packaging as an agent of social messaging track, at the earliest. Underlying this mammoth effort, was a pioneering one in the history of Fast Moving was the unstinted love and trust of our consumers to Consumer Goods companies in India. Girls with whom I owe a debt of gratitude! It is this TRUST that access to education not only improve their own lives enabled MAGGI Noodles to quickly regain leadership but also bring changes to their families, communities position with 60% market share. and economies. This has been Nestlé India’s humble way of making a small, yet deeply felt contribution to With emphasis on innovation and renovation a cause that is important and vital to our society. backed by R&D expertise, last year, the focus has been on re-energizing existing brands, launching India is changing rapidly and dynamically. The new brands and getting into new categories. The forces of urbanisation, increased experimentation strong and unrelenting efforts across all parts of and attitude towards cuisines, is giving us great the organisation led to an unprecedented over 30 opportunity as a food and beverage Company to new products and variant launches across almost all address the consumers with new offerings. We have categories in a short span of time. We also looked at 2000 brands globally and we will explore ways to reducing dependency on a single brand by ensuring bring them to India. In the coming years, Nestlé India all categories contribute to the overall growth of hopes to be part of our consumer journey through the Company. Today we are more focused on life, through enhancing the nutrition credentials of strengthening our position with higher penetration our many brands, fortifying those that are relevant and sales. Calibrated launches based on geography, and addressing in a small yet signifi cant way the brand, category and channel potential was our health issues facing the society. This gives us vast priority. This allows for trying new ideas and yet opportunities to bring to our consumers in India new manage outcomes better. and exciting offerings at different stages of life.

In 2016, we were able to achieve what we did, as we put forward some must-win battles for the Company and considerable effort was made translating them into action. During the year, we worked towards restoring stability at Nestlé India, ensuring double-digit growth, prioritised digital engagement and enhanced media responsiveness. We worked closely with food authorities and collaborated in the areas of “Food Safety and Quality”. Placing consumers at the heart of everything, we introduced Suresh Narayanan 24X7 consumer engagement services enabling direct Chairman & Managing Director consumer connect. Nestlé India Limited

3 Commitment to Make in India Generating employment, harbouring prosperity

If there is one word that encapsulates Nestlé’s presence over ten decades in India, it is the word 'Trust'. After India’s independence in 1947, the economic policies of the Government emphasized the need for local production. Nestlé responded to the country's aspirations and set up its ﬁ rst factory in 1961 at Moga, Punjab. Today, Nestlé has 8 factories across India. 1

4 2 4 5

Our People at Factories

1 Moga Factory, Punjab 2 Choladi Factory, Tamil Nadu 3 Nanjangud Factory, Karnataka 4 Samalkha Factory, Haryana 5 Ponda Factory, Goa 6 Bicholim Factory, Goa 7 Pantnagar Factory, Uttarakhand 6 7 8 Tahliwal Factory, Himachal Pradesh

Nestlé R&D Centre India serves as a hub for innovation & renovation.

Nestlé India Limited • Annual Report 2016 5 Commitment to Consumers Offering Tastier and Healthier Choices

Our goal is to delight consumers every day. This is a continuous process, consumer tastes evolve as the competitive environment continues to change. We leverage our expertise in understanding consumer preference drivers with specialized research processes to help us meet evolving consumer needs.

6 We are committed to ensure that our consumers understand how to enjoy our products as part of a balanced diet. We encourage and empower consumers to make informed choices.

Nestlé India Limited • Annual Report 2016 7 Commitment to Business Partners Growing together

Four generations of Manekias have been a partner with Nestlé as distributors for over 90 years

We share an enduring partnership with our suppliers and distributors based on shared values, business ethics and long term commitment. As a result, most of the partners have been with us for long periods of time and have been growing with us.

8 The three generations of Kukreja family is another V.G.R is associated with us for over six decades as proud partner of our distribution system distribution partner

Malhotra Brothers has been a partner distributor for over ﬁ ve decades

Paras Foods has been a valued partner as supplier for over ﬁ ve decades

Over the years Nestlé India has seen the bond getting stronger with many more associates. The relationship continues to grow based on mutual respect, values and trust.

Murlikrishna's partnership as a chicory supplier has helped create value for farmers, Murlikrishna and Nestlé Nestlé India Limited • Annual Report 2016 9 Commitment to Society Inspiring happiness, nurturing hope

We collect milk from over 100,000 farmers

We believe that for a Company to be successful in the long term it must create value for society. We are committed to addressing the needs of the community.

10 We have built over 244 Clean We have constructed over 300 Over 2,000 coffee farmers have drinking water projects benefitting sanitation facilities benefitting over benefi tted through trainings and over 126,000 students 111,000 girl students technical support

We have trained over 66,000 women dairy farmers

Employee Volunteering Programme is an initiative to sensitise our people towards community development

The Nestlé Healthy Kids Programme has reached out to over 184,000 adolescents creating awareness about healthy lifestyle.

Nestlé India Limited • Annual Report 2016 11 Commitment to Environment Caring for the future

We have consistently emphasized sustainable use of natural resources and non-renewable resources. Within our factories and in areas under our control there is a continuous effort to maximize production while minimizing the consumption of natural resources and reducing waste and emissions.

12 In the last 15 years we have reduced water usage by 53% and waste water by 55% per tonne of production across our eight factories

In 2016, we reduced 800 tonnes of packaging material

The Zer’Eau project in Moga recycles the water extracted from milk and reuses it for processing, enabling us to save 25% of water use at the factory

In the last 15 years we have reduced energy usage by 47% and emissions by 55% per tonne of production across our eight factories.

Nestlé India Limited • Annual Report 2016 13 Commitment to our people Inspired people: Outstanding performance

We support and encourage our people to grow in more than one dimension, to achieve all they can be both professionally and personally. Lasting satisfaction is about combining the intellectual, the emotional, the personal and the social.

14 Encouraging participation in sports activities Collaboration and team work

Promoting nutrition counselling to enable a healthy lifestyle

Efﬁ cient teams at the heart of our operations

Improving the gender balance at Nestlé, has enriched our leadership, increased the supply of talented people and ensured a better understanding of our consumer base.

Nestlé India Limited • Annual Report 2016 15 Corporate Information

BOARD OF DIRECTORS MANAGEMENT COMMITTEE Suresh Narayanan – Chairman & Managing Director Suresh Narayanan – Chairman & Managing Director (DIN 07246738) Aristides Protonotarios – Technical Shobinder Duggal – Director - Finance & Control and CFO Amit Narain – Human Resources (DIN 00039580) Arvind Bhandari – Dairy Aristides Protonotarios – Director - Technical Ashish Pande – Supply Chain (DIN 06546858) B. Kannan – Centre of Expertise - Sales Rajya Vardhan Kanoria – Independent Non-Executive Director B. Murli – Legal & Company Secretary (DIN:00003792) Chandrasekar Radhakrishnan – Communications Ashok Kumar Mahindra – Independent Non-Executive Director Fabrice Cavallin – Nutrition (DIN:00916746) Hari Nariani – ISIT/Nestlé Business Excellence Rakesh Mohan – Independent Non-Executive Director Maarten Geraets – Foods (DIN:02790744) Nayla Siouﬁ – Beverages Ravinder Narain – Independent Non-Executive Director Nikhil Chand – Chocolates and Confectionery (DIN:00059197) Ravi Ramchandran – Sales Swati A. Piramal – Independent Non-Executive Director Sanjay Khajuria – Corporate Affairs (DIN:00067125) Shobinder Duggal – Finance & Control and CFO Ulrich Martin – Nestlé Professional BOARD COMMITTEES: REGISTERED OFFICE M-5A, Connaught Circus, New Delhi - 110 001 AUDIT COMMITTEE Ashok Kumar Mahindra – Chairman HEAD OFFICE Rajya Vardhan Kanoria – Member “Nestlé House” Ravinder Narain – Member Jacaranda Marg, ‘M’ Block, DLF City, Phase II, STAKEHOLDERS RELATIONSHIP COMMITTEE Gurgaon - 122 002 (Haryana) Ravinder Narain – Chairman Shobinder Duggal – Member WEBSITE Rajya Vardhan Kanoria – Member www.nestle.in

CORPORATE SOCIAL RESPONSIBILITY COMMITTEE INVESTOR EMAIL ID Swati A. Piramal – Chairperson [email protected] Ravinder Narain – Member Suresh Narayanan – Member BRANCH SALES OFFICES – KRM Plaza, 1st Floor, North Tower No. 2, Harrington Road, Chetpet, NOMINATION AND REMUNERATION COMMITTEE Chennai - 600 031 th Rajya Vardhan Kanoria – Chairman – Tower "C", 12 Floor, DLF IT Park, 08, Major Arterial Road, Ashok Kumar Mahindra – Member Block – AF, New Town, Rajarhat, Kolkata - 700 156 st Ravinder Narain – Member – 1 Floor, ICC Chambers, Near Saki Vihar Telephone Exchange, Saki Vihar Road, Powai, Mumbai - 400 072 (Maharashtra) – M-5A, Connaught Circus, New Delhi - 110 001 RISK MANAGEMENT COMMITTEE Shobinder Duggal – Chairman FACTORIES Aristides Protonotarios – Member – Village Maulinguem (North), Bicholim Taluka - 403 504 (Goa) Anurag Dikshit – Member – Plot No. 294-297, Usgao Industrial Area, Ponda - 403 406 (Goa) (Head of Treasury & M&A) – Unit I & II - Patti Kalyana, Kiwana Road, Samalkha - 132 101 Dist Panipat (Haryana) AUDITORS – Industrial Area, Tahliwal, District – Una - 174 301 (Himachal Pradesh) A.F. Ferguson & Co., Chartered Accountants, – Industrial Area, Nanjangud - 571 301 Mysore District (Karnataka) 9, Scindia House, – Ludhiana - Ferozepur Road, Near Kingwah Canal, Moga - 142 001 Kasturba Gandhi Marg, (Punjab) New Delhi 110 001 – P.O. Cherambadi - 643 205 Dist. Nilgiris (Tamil Nadu) – Plot No. – 1A, Sector No. - 1, Integrated Industrial Estate, SIDCUL, BANKERS Pantnagar- 263145, Dist. Udhamsingh Nagar (Uttarakhand) Axis Bank Limited Bank of America N.A. REGISTRAR & TRANSFER AGENTS Citibank N.A. M/s Alankit Assignments Limited Deutsche Bank AG 1E/13, Jhandewalan Extension, HDFC Bank Limited New Delhi, 110 055 ICICI Bank Limited Tel No : 011 - 42541234, 23541234 JP Morgan Chase Bank N.A. Fax No : 011 - 41540064 Punjab National Bank State Bank of Hyderabad LISTING OF EQUITY SHARES (Listing Fees paid) State Bank of India BSE Limited, Mumbai, Phiroze Jeejeebhoy Towers, Dalal Street, Standard Chartered Bank Mumbai - 400 001 (Scrip Code : 500790) Yes Bank Limited 58TH ANNUAL GENERAL MEETING CORPORATE IDENTITY NUMBER Thursday, 11th May, 2017 at 10.00 A.M. at L15202DL1959PLC003786 Air Force Auditorium, Subroto Park, New Delhi - 110 010

16 Board's Report - 2016

Dear Members, Net Sales for the year increased by 12.8% on Your Directors are pleased to present their a base impacted by MAGGI Noodles issue. Net report and ﬁ nancial statements for the year Domestic Sales increased by 13.5% and Export ended 31st December, 2016. Sales increased by 3.5% NET SALES

Financial Results and State of Company’s 100,000 Affairs 80,000

(` in Million) 60,000 40,000 in Million)

Particulars 2016 2015 (` 20,000 Net Sales 91,592.8 81,232.7 0 Add: Other operating revenues 645.2 520.4 2012 2013 2014 2015* 2016 Less: Operating expenses 75,983.0 67,800.3 *Impacted by MAGGI Noodles issue Less: Impairment loss on fi xed assets 118.3 282.2 Less: Net provision for contingencies 418.0 333.1 Other Income has increased due to higher (from operations) average liquidities partially offset by lower yields. Profi t from Operations 15,718.7 13,337.5 The Impairment Loss on Fixed Assets of Add: Other income 1,493.9 1,100.9 ` 118.3 million relates to various items of plant Less: Finance costs 35.1 32.9 and machinery and building that have been Less: Employee benefi t expense due to 874.0 753.2 brought down to their recoverable value upon passage of time evaluation of future economic benefi ts from Less: Net provision for contingencies - 1,266.7 301.5 others their use. Profi t before exceptional items, corporate 15,036.8 13,350.8 social responsibility and taxation EARNINGS

Less: Exceptional items 307.8 5,008.4 16,000 160 14,000 140 Less: Corporate social responsibility 313.6 206.1 10) expense 12,000 120 Profi t before taxation 14,415.4 8,136.3 10,000 100 8,000 80 Less: Tax expense 5,150.0 2,503.6 in Million) 6,000 60 Profi t after taxation 9,265.4 5,632.7 (` 4,000 40 Add: Profi t brought forward 18,825.4 18,825.2 2,000 20 Per Share (Face Value - ` Amount available for appropriation 28,090.8 24,457.9 0 0 2012 2013 2014# 2015* 2016 Less: Interim dividends 3,856.6 2,892.5 Profi t after Tax Depreciation & Impairment Less: Proposed fi nal dividend 2,217.6 1,783.7 Earnings per Share Cash Profi t per Share Dividend per Share Less: Dividend distribution tax 1,236.6 956.3 Cash Profi t = Profi t after Tax + Depreciation + Impairment loss Less: Transfer to general reserve - - # Includes additional interim dividend of ` 10 per share Surplus in statement of profi t and loss 20,780.0 18,825.4 *Impacted by MAGGI Noodles issue Key ratios The Company supplemented the Provision for Earnings per share (`) 96.10 58.42 Contingencies with further amount of Dividend per share (`) 63.00 48.50 ` 1,684.7 million (net) for contingencies resulting mainly from issues, which are under litigation/ dispute and other uncertainties requiring management judgement.

Nestlé India Limited • Annual Report 2016 17 MARKET CAPITALISATION This was after the reversal, utilisation/ 700 400 settlement of contingency provision of ` 128.9 600 10) 300 million due to the satisfactory settlement of 500 400 certain litigations and settlement of obligations 200 300 under free replacement warranty for which in Billion) (` 200 provision is no longer required. 100 100 Per Share (Face Value - ` SOURCES AND UTILISATION OF CASH 0 0 2012 2013 2014 2015* 2016

20,000 24 Market Capitalisation Book Value per Share 20 Market Capitalisation is based on year end closing share price 16,000 quoted on the Bombay Stock Exchange. Book Value per share is 16 12,000 based on the total shareholder's funds as at the year end

12 * 8,000 Impacted by MAGGI Noodles issue 8 in Million) 4,000 (` 4 0 0 FIXED ASSETS 2012 2013 2014 2015* 2016 60,000 6 Debt:Equity 37 : 63 37 : 67 1 : 99 1 : 99 1 : 99 50,000 5 Operating Cash Flows as a % of Net Sales Operating Cash Flows Borrowings (Net) Capital Expenditure 40,000 4 Dividend and Tax Repayment of Op. Cash Flows as thereon Borrowings (Net) a % of Net Sales 30,000 3

*Impacted by MAGGI Noodles issue in Million) 20,000 2 (`

10,000 1

Exceptional Items during the year is net of: Net Fixed Asset Turns (Times) 0 0 2012 2013 2014 2015* 2016 (a) Provision made for diminution in the value of Net Fixed Assets Accumulated Depreciation non-current investment: ` 200.0 million; Net Fixed Assets Turns (Times) *Impacted by MAGGI Noodles issue (b) Write backs, arising, inter alia, from actualization of estimates of part of the provision EMPLOYEE BASE made for exceptional item in the previous year: 8000 16 ` 212.2 million;

6000 12 in Million) c) Cost towards the restructuring of a long term arrangement for supply of ingredients to 4000 8 extinguish the obligations under the arrangement in view of changed business circumstances: 2000 4 Number of Employees ` 320.0 million. 0 0 *

2012 2013 2014 2015 2016 Net Sales per Employee ( ` SHAREHOLDERS' FUNDS No. of Employees Net Sales per Employee 35,000 90 *Impacted by MAGGI Noodles issue 30,000 75 25,000 60 20,000 45 Dividends 15,000 in Million) 30 (` 10,000 The Board of Directors have recommended a ﬁ nal dividend of ` 23/- per equity share 5,000 15

Return on Average Equity (%) (Face value ` 10 per equity share) for 2016, 0 0 2012 2013 2014 2015* 2016 amounting to ` 2,217.6 million. This is in addition to three interim dividends already Share Capital Reserves & Return on Average Surplus Equity (%) paid for the year 2016, at the rate of ` 12/- per *Impacted by MAGGI Noodles issue equity share, ` 12/- per equity share and

18 ` 16/- per equity share which were paid on/ Business Development from 31st May, 2016,19th August, 2016 and 22nd December, 2016, respectively. The total Your Company remained dedicated to dividend for 2016 aggregates to ` 63.00 per strengthening Nutrition, Health and Wellness equity share, amounting to ` 6,074.2 million. across its product portfolios. It made product propositions more compelling, widened tasty Exports and healthier offerings by innovation and renovation and remained relevant to consumers’ Despite the pressures in the external requirements. The year 2016 witnessed a spate environment in 2016, the exports division of innovations and renovations with the launch of leveraged your Company’s diversifi ed portfolio more than 30 new products and variants. contributing to the total revenue. MAGGI Noodles were welcomed back by shoppers Having Nestlé R&D Centre India in Manesar, while confectionery opened doors to export to has also brought Nestlé global research eight markets in the Middle East and Ghana. and development closer to your Company’s Though instant tea remained fl at, instant coffee businesses. Along with the network of R&D registered growth on account of increase in Centres across the globe, R&D India and the exports to Romania and Bangladesh. Infant Business Units worked towards developing Nutrition exports also showed good growth. winning concepts, suited to local consumers. The teams got engaged in a lot of groundwork Customer feedback surveys were conducted and several stages of ideation for all your from different markets to ensure long term Company’s new as well as existing products. sustained growth. Our efforts in developing Your Company made every effort to increase exports of quality coffee, meanwhile, continued penetration with more offerings, across all to earn us recognition. portfolios such as the following: Contribution to the Exchequer Launch of New MAGGI Noodles Variants Your Company, over the years, has been enabling signifi cant contribution to various taxes. • MAGGI Noodles strengthened its leadership During the year 2016, the Company through its position with about 60% market share in the business, enabled tax collections at Central and Noodles category as per Nielsen report. Your State level close to ` 23.9 billion, in aggregate Company introduced ‘MAGGI HOT HEADS’ and ‘MAGGI No Onion No Garlic Masala’ variants of ENABLED CONTRIBUTION TO EXCHEQUER MAGGI Noodles

28000 28

24000 24 • Cup noodles were back with the introduction 20000 20 of MAGGI HOT HEADS Cuppa Noodles and the 16000 16 re-launch of MAGGI Cuppa Masala and MAGGI

in Million) 12000 12

( ` Cuppa Chilly Chow 8000 8 % of Net Sales 4000 4

0 0 • A comeback in the soups category through the 2012 2013 2014 2015* 2016 New MAGGI Cup-a-licious Soups – a range of 6 Contribution Contribution as PAT as % of Net Sales % of Net Sales instant soups available in exciting, contemporary

*Impacted by MAGGI Noodles issue and unique ﬂ avours

Nestlé India Limited • Annual Report 2016 19 Strengthening of Milk Products and nearly 60% market share post re-launch. The Nutrition Portfolio year started with a strong focus on reinforcing nostalgia and re-invoking the quintessential MAGGI Moments via the #NothingLikeMAGGI • Your Company’s focus in the milk product campaign that helped build back brand equity, category has been on the value-added segment. NESTLÉ a+ GREKYO was introduced in several quickly. In addition to the thematic advertising, variants along with EVERYDAY Masala Fusion brand MAGGI also put immense focus behind Dairy Whitener with 6 natural spice ﬂ avours small town and rural pockets via sampling, activation and vernacular media engagements. • NESCAFÉ RTDs (Ready-To-Drink) in three As a result, today brand MAGGI’s equity and unique ﬂ avours were introduced in the market

• Products like CEREGROW for children between the age group of 2 to 5 and NESTLÉ a+ PRO-GROW, a protein rich milk were all clutter breaking innovations

• The Company renovated the entire CERELAC range fortifying it with Iron

Expanding Coffee and Beverages

Portfolio imagery scores stand almost at par with the pre-crisis levels, as also refl ected in MAGGI’s • NESCAFÉ SUNRISE INSTA-FILTER was meteoric recovery in the Brand Equity’s MOST introduced as part of your Company's focus into differentiated products. This revolutionary new TRUSTED BRAND SURVEY for 2016. In the th coffee with dry decoction granules offers the said Survey, the brand had fallen to 95 Rank in authentic South Indian Filter Coffee Taste in the top 100 Most Trusted Brands in 2015, but an instant in 2016 it gained 70 places to end at 25th Rank. In the Foods category MAGGI ranked at 3rd • Three very exciting variants for NESTEA Iced position. Tea were launched along with NESCAFÉ Latté In addition to re-building the core back, brand More offerings in the Chocolate and MAGGI also unleashed a slew of innovations in Confectionery Portfolio noodles and other adjacent categories in 2016, thereby reinvigorating its portfolio. In noodles, • Your Company continued its focus to grow a new range of spicy noodles targeted at new brands like KITKAT, MILKYBAR, NESTLÉ age youth was launched under the name of MUNCH, BARONE and ALPINO MAGGI HOT HEADS. All the four variants have met with good response and continue to sizzle • KITKAT Duo was a fi rst of its kind combination the taste-buds across the country. Apart from of brown and white and BARONE CHARGE and these, MAGGI also expanded its sauces range the New ALPINO were introduced to cater to by launching the MAGGI Masala Sauce that niche audiences promises the signature MAGGI Masala taste in tomato sauce. Lastly, MAGGI made a comeback The business of ‘Prepared Dishes and Cooking in the Soups Category though the New MAGGI Aids’ saw the brand MAGGI go from strength Cup-a-licious Soups – a range of 6 instant soups to strength, throughout the year in 2016. It available in exciting, contemporary and unique reclaimed the noodle category leadership with fl avours.

20 The ‘Chocolate and Confectionery’ business starts with a NESCAFÉ’. The RJ campaign with focused on the mainstream and the high the tagline of #StayStarted became the most growth premium segments. An array of product viewed digital campaign which saw an extension launches were made to cater to rapidly evolving of the Reel life into Real life with RJ Rishi coming consumer tastes and preferences across the to life and hosting a real radio show NESCAFÉ portfolio. KITKAT Duo and NESTLÉ MUNCH Mornings with radio channel Red FM. NESCAFÉ TRIO were innovative launches targeted to Labs created impact with its mega challenge delight consumers. The events and with ground events at various re-launch of the fl agship colleges all over India. NESCAFÉ SUNRISE was premium brand ALPINO also renovated with a superior taste. (bonbons made of milk chocolate, draped The ‘Milk Products and Nutrition’ business over a crispy cocoa category saw the extension of the journey from wafer encasing a rich, infants to toddlers as your Company velvety centre), along with the launch of a range launched CEREGROW during the year. of premium imported tablets from Europe, A nutritious and tasty junior cereal for rejuvenated your Company’s premium chocolate 2-5 year old kids, the product is packed offerings. with the nourishment of multigrain cereal, milk and fruits. The Company Innovative, category-fi rst and relevant consumer renovated the entire CERELAC range promotions were offered to consumers fortifying it with Iron to support cognitive and throughout the course of the year. The Paytm brain development in early infancy. cash promotion on KITKAT was an industry-fi rst marketing activity. Innovation in communication Nestlé believes breast milk provides the best was seen in KITKAT with fi lm integration.The nutrition for babies. This is why the Company digital platform was highly leveraged across promotes the World Health Organization’s Twitter through #MyBreak campaign and recommendation of exclusive breastfeeding for YouTube through the Laughter Games (comedy the fi rst six months of life and beyond. Good creators) integration. KITKAT India won the fi rst nutrition during the ‘First 1000 days’ places edition of the Twitter Aviator Awards in 2016, a babies on the path to a healthy future. Under global contest organized by Nestlé and Twitter your Company’s ‘Start Healthy Stay Healthy’ exclusively for Nestlé markets, delivering a program, over 963 Breastfeeding Rooms were dynamic and real time campaign based on daily installed in clinics across 150 cities in the trends in India. country. A breastfeeding room locator tool was also developed to enable mothers to fi nd the For ‘Coffee and Beverages’ 2016 was a nearest breastfeeding room. The SUPERBABY challenging year with campaign was launched with the key message ‘It takes you all to make a Superbaby’ in order increased competitive to emphasize the role of various stakeholders to intensity as well as #HelpMomsBreastfeed. a volatile external environment. Your With focus on the value added segment, your Company fi rst redefi ned the developed coffee Company launched a brand new exotic range of market in the south by launching NESCAFÉ Greek Yoghurt under the brand name of SUNRISE INSTA-FILTER – a revolutionary new NESTLÉ a+ GREKYO coffee chicory mixture with dry decoction for the fi rst time granules to offer the authentic South Indian in India. A perfect Filter Coffee Taste in an instant. Three very blend of health and exciting variants for NESTEA Iced Tea were indulgence, NESTLÉ a+ GREKYO has a rich launched along with NESCAFÉ Latté. Brand and creamy texture coupled with real fruit bits. NESCAFÉ continued building its connect with Globally the Greek Yoghurt category came into the youth in line with the brand idea of ‘It all prominence less than a decade back and in

Nestlé India Limited • Annual Report 2016 21 certain countries it has already captured a major which are Nutrition, Environment and Society. share of the entire yoghurt market. In India, Committed to promoting a healthy lifestyle, your this category is still at a nascent stage but your Company partnered with PROCAM Running, Company is confi dent that it will lead the global the organizers for marathon events, across trend for the Indian consumers soon. NESTLÉ India in four metropolitan cities. Expert sports a+ PRO-GROW has been another addition to nutritionists provided personalized nutrition the NESTLÉ a+ brand and addresses specifi c counselling to runners to help them get run-ready needs of protein for growing children. Your from nutritional perspective. Your Company also Company continued its journey as pioneers by conducted sessions on nutrition counselling for customizing not just the taste, but also the mode consumers in modern trade outlets, government of consumption to deliver ‘Anytime Coffee’ for offi ces and corporate offi ces. The objective today’s active lifestyle and launched NESCAFÉ was to help the participants to make tastier and Ready-to-Drink range. healthier food choices for a healthy lifestyle.

‘Nestlé Professional’ business registered volume Awards and Recognitions growth in 2016. The New NESCAFÉ Solution BrandZ is an annual consumer study conducted machine continued to perform well in the by Kantar Millward Brown for WPP Group. business and industry channels. The Millward Brown then combines the BrandZ data entire range of coffees pre-mixes with fi nancial data of brands to compile their for hot and cold machines, were annual rankings of top 50 most valuable brands renovated by your Company and in India. In 2016, your Company was recognized NESTEA Masala Gold tea premix as ‘The Most Valuable Food Brand’ in India. Your was successfully launched. All th th food categories generated growth. Company ranked 13 and MAGGI ranked 39 in Chef2Chef activities pan India offered good the overall top 50 most valuable brands in India. visibility to Nestlé Professional products. Nestlé Professional signifi cantly developed sales in The Effi e Awards are known by advertisers and transport channels by enlarging the assortment agencies globally as the pre-eminent award of products in Airlines and the Indian Railways. in the industry, and recognizes all forms of marketing communication that contribute to a Commitment to Nutrition, Health brand's success. Since 1968, winning an Effi e has become a global symbol of achievement. and Wellness Today, Effi e celebrates effectiveness worldwide with the Global Effi es and the Positive Change In addition to providing consumers with Effi es, regional programs in Asia-Pacifi c, Europe, differentiated and innovative choices, the Middle East / North Africa, North America, your Company also places high priority Latin America and more than 40 national Effi e in providing consumers with nutrition programs. 2016 was a landmark year for your information on food labels to make informed dietary choices. The GDA labelling provides Company’s Effi e’s Journey. Nestlé India became guidance on the daily intake for energy and The Top Food & Beverage Client of the Year defi nes key nutrients to help consumers evaluate at Effi es 2016. Your Company bagged the a product’s role in their daily diet. To demonstrate fi rst ever Gold Metal for the MAGGI ‘Winning this commitment your Company has started GDA Back A Mom’s Trust’ campaign in the Foods labelling on the entire confectionery portfolio, category. It also Bagged 2 Silver Metals for the Beverages portfolio, UHT milk, MILKMAID ‘MAGGI Comeback’ campaign in the Foods and Sweetened Condensed Milk and EVERYDAY Integrated campaign categories and a Bronze Dairy Whitener. Your Company enhanced Metal for NESCAFÉ in the Beverages category. labelling of products with a QR code that allows Your Company was awarded CII SCALE award consumers to use their smart phones to fi nd out for being most innovative digital supply chain more about its products. On scanning the QR across FMCG during 2016. Your Company also code on the label, consumers can get information won the ASSOCHAM excellence award for Best specifi c to the product under three heads, FMCG Company in Logistics and Warehousing.

22 Employee Focus accounts. The National Payments Corporation In 2016, the effort was towards re-visioning of India (NPCI) successfully fi nalized the Unifi ed the culture of your Company in line with the Payments Interface (UPI) platform enabling ambition of being a Fast, Focused and Flexible mobile phones in digitalization of payments. Over organization. Rise2Gether was a cultural the past year much progress has been made in intervention basis evaluation of feedback from spreading JAM (Jan Dhan, Aadhar and Mobile) employees and from the leadership team and across the country which refers to large-scale, then identifying the key focus areas for change. technology-enabled, real-time cash transfer. This Your Company has also made consistent efforts has the potential of fi nancial inclusion improving towards being an Employer of Choice for current the economic lives of the poor. and prospective employees. Your Company connected with students across campuses Consumers are opting to spend on necessities and held a national case study competitions rather than on discretionary items. The FMCG panning HR, Supply Chain and Marketing. The industry remained under pressure because of members of the Management Committee also subdued consumer sentiments. Earnings for travelled across campuses delivering talks on most companies were soft through the year and leadership. To ensure your Company invests they struggled for volume growth. in high calibre talent, over 70 employees were part of high potential programs and another 100 The current emphasis on ‘Make in India’, employees went through the Executive General investments in accelerating development of Management Program at IIM Calcutta. transport infrastructure, pro-reform approach and efforts at fi scal rationalization are all positive Management Analysis indicators and your Company is optimistic that Review of economic scenario and outlook the economy will pick up.

Last year was marked by two important The passage of the GST bill in the Parliament economic policy developments in India: a is a positive for the economy bringing in more constitutional amendment making way for the transparency in the tax administration. GST will goods and services tax (GST) and withdrawal of create a common Indian market, improve tax legal tender of high value currency notes compliance and governance. The transition to (` 500 and `1000) which intends to curb black GST is complex from an administrative as well as money and running of a parallel economy. With a technological perspective. What will be critical a slow start in 2016, the economic momentum is the efﬁ ciency in relation to its implementation. recovered towards the middle of the year. Your Company believes that in the medium run While this growth momentum was temporarly it will lead to more digitalization and will help in impacted with demonetization, the India effective governance. economy appears to be recovering fast and will continue as one of the fastest growing nations. Risks and Opportunities

Cashless transactions systems have been The economic and business environment is fast encouraged across the board. The move evolving, and with the rapid transformation of towards digital payment have benefi tted technology and the impact of cultural changes, e-commerce companies though dependence society and consumers are also transforming on cash-on-delivery got impacted. In the urban on multiple dimensions. Increased exposure, markets, the drop in sales in traditional retail improved education and awareness, as well outlets due to lack of cash availability have been as changing aspirations at various levels of the partially compensated by the modern trade income pyramid and the urban-rural divide are channel. creating opportunities that organizations need to understand and prepare for the emerging future. Greater formalization of the economy has Your Company has signifi cant strengths and triggered fi nancial inclusion and the banking being Nestlé is in itself a very huge strength, system has benefi tted partially from higher because the brand brings with itself 150 years of trust and credibility. The General License levels of deposits as well as the opening of new

Nestlé India Limited • Annual Report 2016 23 Agreement gives it access to Nestlé Group’s speed with best-in-class visibility. Realizing proprietary technology / brands, expertise the growing importance of e-retailing the and extensive centralized Research and Company continues to successfully engage Development facilities. with the leading e-retailers. The Company has been constantly looking for opportunities and The Company is an integral part of Indian society partnerships to reach out to consumers in a and has state-of-the-art manufacturing facilities, relevant and engaging manner. It has leveraged effi cient supply chain, sales automation with all channels that consumers reach out for buying extensive reach and coverage in its target Nestlé products. Hence along with traditional markets, strong brands and capable employees and modern trade partners, your Company has and partners who are committed to provide joined hands with e-commerce companies. value with high quality and safe food products. Technology, Quality and Safety However, the Indian market is complex and demands a very effi cient and complex supply Nestlé Continuous Excellence (NCE) as chain confi guration. This is further complicated a management system ensures that the by cascading indirect taxes. With GST roll out workforce of your Company is fully aligned with in 2017, this should be addressed though full the organization’s strategy towards delivering gains out of it would take some time to realise. competitive advantage and consumer led Your Company is operating in an industry that growth. Last year was marked by the factories faces price volatility in raw materials and is supporting and delivering continuously in order dependent on agricultural commodities that need to meet stringent quality standards and to meet business objectives by ensuring timely on natural resources where alternatives are launch of new products. This was in addition to not viable. There is also increasing competition catering to the regular production of the existing in processed foods and as the regulatory brands available in the market. framework is evolving, standardization of norms is a major requirement for new and innovative In spite of increased production, the overall product launches. Clearly, even though there asset intensity (equivalent to operational is slower than anticipated momentum in the effi ciencies) and cost reduction improved. This economy, there are opportunities. Consumer was achieved through the following: lifestyles are changing and there is increasing demand for value-up and premium products and • Total Performance Management (TPM) and your Company can leverage Nestlé technology focused improvement projects have been to develop more science based products that consistently driven to achieve manufacturing provide superior benefi ts of Nutrition, Health and excellence. Wellness at appropriate price points. Technology is throwing up immense opportunities to • The education and understand consumers and engage better training pillar focused with them. Digital and e-commerce can hold on setting up of immense potential and strategic signifi cance strong understanding for your Company. of methodologies and stressed on the Sales importance of capability building across the manufacturing units. Your Company is proud of the immense commitment and support that trade partners In line with the ‘Zero Defect & No Waste’ policy, and retailers have extended, for not only the the following defect reduction projects were strong comeback of MAGGI Noodles, but also driven up to consumer touch-points: for whole-heartedly supporting the launch of the many new products and variants. Your • ‘Quality by Design’ initiatives like packaging Company has also demonstrated the strength structural improvements with an additional of its sales and distribution network by bringing overwrap protection for Nutrition portfolio. new products on to the shelves, at a very fast KITKAT tamper proof packaging and

24 anti-counterfeit packaging on bigger NESCAFÉ soft packs, have helped address issues related to packaging. • Reduced the usage of water by • Continuing our strong collaboration with around 53% upstream raw material and packaging material vendors ensured right quality material for smooth operations.

• Special focus was given to improve the cool chain effectiveness for confectionery products. This included project where your • Reduced Company collaborated with business partners generation of (Distributors) to contribute in quality control. waste water usage by Signifi cant progress was also made on road around 55% safety awareness with our fi nished goods transporters and milk tanker fl eets operational at our factories. Drivers’ rest rooms have been organized at factories to give drivers proper rest before the journey commencement. Risk assessment for the journey is being discussed for all identifi ed lanes, use of seat belts and • Reduced proper maintenance of vehicles prior to the specifi c direct journey is being mandated. greenhouse gas emissions Environment by 55%

As in the past, your Company continued to stress upon measures for the conservation and optimal utilization of energy in all the Supply Chain areas of operations, including those for energy generation and effective usage of sources/ During 2016 your Company consolidated and equipment used for generation. Within Nestlé further accelerated the supply chain strategy to India factories there have been continuous support the priorities of the market. efforts to improve operational effi ciencies, minimizing consumption of natural resources Product launches were done in an effi cient and and reducing water, energy and CO2 emissions speedy manner from concept development to while maximizing production volumes. market launch by the team in close collaboration with all stakeholders. As a result, during the period from 2001 to 2016, for every ton of production, your Company In order to build logistics capability across has reduced the usage of energy by around supply chain team and prepare your Company 47%, water usage by around 53%, generation to be GST- Ready, ‘Logistics Excellence’ review of waste water by around 55%, reduction in program was launched across the organization. specifi c direct greenhouse gas emissions This resulted in capability building of the logistics by 55%. team on the ground and identifi cation of waste across the value chain leading to cost effi cient operations. As a result, material fl ow across our • Reduced the factory and distribution centres was enhanced usage of energy leading to fresh products on the shelf and faster by around 47% speed to market.

Nestlé India Limited • Annual Report 2016 25 Sales and operations planning process across the applicable accounting standards have been the organization was refreshed using enhanced followed and no material departures have been use of data analytics for demand planning, made from the same; creation of robust event management process leading to better delivery of sales execution on b) they have selected such accounting policies the ground. and applied them consistently and made judgments and estimates that are reasonable In order to continuously create value for our and prudent so as to give a true and fair view of consumers and customers in today’s reality of the state of affairs of the Company at the end commodity headwinds and intense competitive of the fi nancial year and of the profi ts of the intensity at market place, your Company Company for that period; accelerated the deployment of LEAN mindset across value chain. This helps to align the value c) they have taken proper and suffi cient care for chain to continuously reduce non-value added the maintenance of adequate accounting records activities and thereby optimizing cost structures in accordance with the provisions of the Act for across your Company. safeguarding the assets of the Company and for preventing and detecting fraud and other Quality in the value chain initiative was launched irregularities; across the Company ensuring that handovers across value chain are managed seamlessly. d) they have prepared the annual accounts on a This helps the Company to ensure that right going concern basis; quality of products are available on the shelves for our consumers, despite the journey through e) they have laid down internal fi nancial controls a fragmented trade structure, multiple storage to be followed by the Company and that such points and unstructured handling. internal fi nancial controls are adequate and were operating effectively; and Your Company further extended the Responsible Sourcing program to cover not only the direct f) they have devised proper systems to ensure materials suppliers but also our transporters, compliance with the provisions of all applicable services and indirect material suppliers. This is laws and that such systems were adequate and part of our commitment to business integrity, operating effectively. openness, respect for universal human rights and core labour principles. Corporate Governance

Cautionary Statement In terms of Regulation 34 of the Securities Exchange Board of India (Listing Obligations and Statements in this Report, particularly those Disclosure Requirements) Regulations, 2015 which relate to Management Discussion (hereinafter “Listing Regulations”), a Report on and Analysis as explained in the Corporate Corporate Governance along with Compliance Governance Report, describing the Company’s Certiﬁ cate issued by Statutory Auditor’s of objectives, projections, estimates and the Company is attached as Annexure - 1 and expectations may constitute ‘forward looking forms integral part of this Report (hereinafter statements’ within the meaning of applicable “Corporate Governance Report”). laws and regulations. Actual results might differ materially from those either expressed Directors and Key Managerial or implied in the statement depending on the circumstances. Personnel Directors’ Responsibility Statement During the year under review, on the recommendation of the Nomination and Remuneration Committee, the Board of The Directors state that: Directors appointed Dr. Rakesh Mohan as an a) in the preparation of the annual accounts, Independent Non-Executive Director of the

26 Company with effect from 1st May, 2016. related matters are put up on the website of The Members, in its 57th Annual General the Company at the link: https://www.nestle. Meeting held on 12th May, 2016, approved in/investors/directorsandoffi cers/familiarisation- the appointment of Dr. Rakesh Mohan as programme. Independent Non-Executive Director of the th Company to hold offi ce for a term up to 30 The Company has devised a formal process June, 2020. for annual evaluation of performance of the Board, its Committees and Individual Directors Mr. Aristides Protonotarios, Whole-time Director (“Performance Evaluation”). It covers the areas of the Company designated as “Director – Technical”, who was appointed for a period of relevant to the functioning as Independent fi ve years with effect from 1st April, 2013, shall Directors or other directors, member of Board or be taking up a new assignment within the Committee of the Board. The Company engaged Nestlé Group and therefore shall cease to be the a leading HR Consulting Firm for compilation of Whole-time Director of the Company with effect the feedback received from the Board members, from 31st March, 2017. Committee members and directors and for identifying key inferences and observations with Mr. Shobinder Duggal shall retire at the respect to Performance Evaluation. forthcoming Annual General Meeting and being eligible offers himself for re-appointment. The Corporate Social Responsibility brief resume and other details as required under the Act and Listing Regulations are provided in the Notice of the 58th Annual General Meeting of During the year under review, the name of the the Company. Corporate Governance and Social Responsibility Committee was changed to Corporate Social The Independent Directors of your Company Responsibility Committee and Dr. (Mrs.) Swati have given a declaration confi rming that they A. Piramal, Independent Non-Executive Director, meet the criteria of independence as prescribed was appointed as Chairperson of the Committee both under the Act and the Listing Regulations. in place of Mr. Suresh Narayanan. The Corporate Social Responsibility Committee comprises of The Nomination and Remuneration Committee Dr. (Mrs.) Swati A. Piramal (Chairperson), had adopted principles for identifi cation of Key Mr. Ravinder Narain, Independent Non-executive Managerial Personnel, Senior Management Director and Mr. Suresh Narayanan, Chairman including the executive directors which and Managing Director of the Company. The are based on “The Nestlé Management terms of reference of the Corporate Social and Leadership Principles” and “Nestlé Responsibility Committee is provided in the Leadership Framework” which is available on Corporate Governance Report. Your Company the Company’s Website www.nestle.in. The has also formulated a Corporate Social Appointment and Remuneration Policy of the Responsibility Policy (CSR Policy) which is Company includes criteria for determining available on the website of the Company at qualifi cations, positive attributes and https://www.nestle.in/investors/policies. Annual independence of a director and policy relating to report on CSR activities as required under the the remuneration of Directors, Key Managerial Companies (Corporate Social Responsibility Personnel and other employees. The same is Policy) Rules, 2014 has been appended as attached as Annexure – 2 and forms integral part Annexure - 3 and forms an integral part of of this Report. this Report.

The details of familiarization programmes to In terms of Section 135 of the Companies Act, Independent Directors with the Company, their 2013 read with Companies (Corporate Social roles, rights, responsibilities in the Company, Responsibility) Rules, 2014 as amended (“CSR nature of the industry in which the Company Rules”) and in accordance with the CSR Policy, operates, business model of the Company and during the year 2016, the Company has spent

Nestlé India Limited • Annual Report 2016 27 above two percent of the average net profi ts amongst adolescents, young couples and of the Company during the three immediately caregivers. preceding fi nancial years. The details are provided in the Annual Report on CSR activities. #EducatetheGirlChild – Partnership with In addition to the above, the Company has been Nanhi Kali implementing societal activities since many Your Company was happy to be associated with decades under the umbrella of Creating Shared #EducateTheGirlChild program which aimed at Value activities which has not been reckoned for raising awareness about girl child education. arriving at the spends as per CSR Rules. We extended support to girl child education in association with Nanhi Kali, one of the largest Some key initiatives which your Company has community programs imparting education to been engaged in are as follows: underprivileged girl children across India. This partnership provided on ground support to girl Nestlé Healthy Kids Programme children through necessary academic material The Nestlé Healthy Kids Programme has been and social backing by identifying critical centres developed with a focus to raise nutrition and of education of the Nanhi Kali project. Three health awareness of school age children. The most iconic brands of Nestlé India - MAGGI, unbranded programme has been conducted NESCAFÉ and KITKAT – changed packaging since 2009, in village schools around the to support girl child education. Your Company factories of your Company with the objective changed packaging of 100 million packs with the of raising awareness regarding good nutritional aim of raising more awareness about the cause. and cooking practices, good hygiene and promoting physical fi tness. The programme has Collaboration between Nestlé India, Food and been conducted in partnership with six leading Drugs Administration, Goa and NASVI regional Universities through the Department of Home Science and Food Science. joining hands Your Company joined hands with Food and Your Company has also been working in metros Drugs Administration, Goa and National in partnership with Magic Bus (one of India’s Association of Street Food Vendors of India largest behavior change organisations). Magic (NASVI) to train over 1000 street vendors in Goa. Bus has a well-entrenched community presence, The training of street vendors was conducted across 22 states both in rural and urban through NASVI’s training center and comprised geographies and the Healthy Kids Programme of subjects such as health, hygiene, food is conducted through the Magic Bus model handling, food safety, personal hygiene, cart of ‘engaging through sports and activities’ hygiene, cleaning and chemicals, pest control, as a medium to bring change. Children are garbage disposal and entrepreneurship. The engaged in interactive sessions in which they participants were also awarded a certifi cate at receive nutrition and health knowledge and are the end of the training. encouraged to play regularly. Project Jaagriti Business Responsibility Report Your Company rolled out the Project Jaagriti in partnership with Mamta Health Institute for Nestlé’s approach to business is Creating Shared Mother and Child as part of its commitment to Value or ‘Saanjhapan’ as used by your Company provide education programmes for good nutrition and it is about the impact of the business and and feeding practices improving nutritrion and engagement through it. Your Company has been health at key life stages - adolescents and conducting business in a way that both deliver caregivers. The programme has been conducted long-term shareholder value and benefi t society across 15 districts in 7 states and 1 union under approach of “Creating Shared Value” territory with a goal to accelerate the uptake (hereinafter ‘CSV). of health services by improving continuum of care on health, nutrition and hygiene practices The Business Responsibility Report as per

28 Regulation 34 of the Listing Regulations is M/s. A.F. Ferguson & Co. over many years have annexed as Annexure – 4 and forms integral part successfully met the challenge that the size of the Annual Report. and scale of the Company’s operations pose for auditors and have maintained the highest level Statutory Auditors of governance, ethical standards, rigour and quality in their audit. The Board place on record As per Section 139 of the Companies Act, 2013, its appreciation for the services rendered by M/s. read with the Companies (Audit and Auditors) A.F. Ferguson & Co. as the Statutory Auditors of Rules, 2014, the term of M/s. A.F. Ferguson the Company. & Co. (Firm Registration No. 112066W), Chartered Accountants, New Delhi as the Cost Auditors Statutory Auditors of the Company expires at the conclusion of the ensuing Annual General As per Section 148 of the Act read with Meeting of the Company. Companies (Cost Records and Audits) Rules, 2014, the Audit Committee recommended The Board of Directors of the Company at their and the Board of Directors appointed M/s. meeting held on 28th October, 2016, on the Ramanath Iyer and Co., Cost Accountants, New recommendation of the Audit Committee, have made its recommendation for appointment of Delhi (Registration No. 00019) being eligible and M/s. BSR and Co. LLP, Chartered Accountants having sought appointment, as Cost Auditors (ICAI Registration No- 101248W/W-100022), of the Company, to carry out the cost audit of as the Statutory Auditors of the Company milk powder products manufactured by the by the Members at the 58th Annual General Company falling under the specifi ed Central Meeting of the Company for an initial term of Excise Tariff Act heading in relation to the 5 years. Accordingly, a resolution, proposing fi nancial year ending 31st December, 2017. The appointment of M/s. BSR and Co. LLP, Company has received their written consent Chartered Accountants, as the Statutory that the appointment is in accordance with the Auditors of the Company for a term of fi ve consecutive years i.e. from the conclusion of applicable provisions of the Act and rules framed 58th Annual General Meeting till the conclusion thereunder. The remuneration of Cost Auditors of 63rd Annual General Meeting of the Company has been approved by the Board of Directors on pursuant to Section 139 of the Companies the recommendation of Audit Committee and Act, 2013, forms part of the Notice of the 58th in terms of the Companies Act, 2013 and Rules Annual General Meeting of the Company. The thereunder the requisite resolution for ratifi cation Company has received their written consent of remuneration of Cost Auditors by the and a certifi cate that they satisfy the criteria members has been set out in the Notice of the provided under Section 141 of the Act and that 58th Annual General Meeting of your Company. the appointment, if made, shall be in accordance with the applicable provisions of the Act and rules framed thereunder. Secretarial Auditors

The Report given by M/s. A.F. Ferguson & Co., The Secretarial Audit was carried out by M/s. Statutory Auditors on the fi nancial statement S.N. Ananthasubramanian & Co., Company of the Company for the year 2016 is part of the Secretaries (PCS Registration No.1774) for the Annual Report. There has been no qualifi cation, fi nancial year 2016. The Report given by the reservation or adverse remark or disclaimer in Secretarial Auditors is annexed as Annexure – 5 their Report. and forms integral part of this Report. There has been no qualifi cation, reservation or adverse During the year under review, the Auditors had not reported any matter under Section 143 (12) remark or disclaimer in their Report. During the of the Act, therefore no detail is required to be year under review, the Secretarial Auditors had disclosed under Section 134 (3)(ca) of the Act. not reported any matter under Section 143 (12) of the Act, therefore no detail is required to be

Nestlé India Limited • Annual Report 2016 29 disclosed under Section 134 (3)(ca) of the Act. approval by the Audit Committee within the overall framework of the policy on related party In terms of Section 204 of the Companies Act, transactions. Prior omnibus approval is obtained 2013, the Audit Committee recommended for related party transactions which are of and the Board of Directors appointed M/s. repetitive nature and entered in the ordinary S.N. Ananthasubramanian & Co., Company course of business and at arm’s length. All Secretaries (PCS Registration No.1774) as the related party transactions are placed before the Secretarial Auditors of the Company in relation Audit Committee for review and approval. to the fi nancial year 2017. The Company has received their consent for appointment. All related party transactions entered during the Financial Year were in ordinary course of Meetings of the Board the business and on arm’s length basis. No material related party transactions were entered During the year, the Board of Directors had fi ve during the Financial Year by your Company. Board meetings. For details of the meetings Accordingly, the disclosure of related party of the Board, please refer to the Corporate Governance Report. transactions as required under Section 134(3)(h) of the Companies Act, 2013 in Form AOC 2 is not applicable to your Company. Extract of Annual Return Members may refer to note no. 40 to the The extract of the Annual Return of the Company fi nancial statement which sets out related party is annexed as Annexure - 6 and forms integral disclosures pursuant to AS-18. part of this Report. Risk Management Details of Loans and Investments The Board of Directors had constituted Risk Details of the loans given by your Company Management Committee to identify elements under Section 186 of the Act during the fi nancial of risk in different areas of operations and to year ended 31st December, 2016 are as follows: develop policy for actions associated to mitigate the risks. The Committee on timely basis Nestlé R&D Centre India Private Limited (Fellow informed members of board of directors about Subsidiary): ` 400 million at the interest rate risk assessment and minimization procedures of 8.97% for general business purpose (Loan which in the opinion of the Committee may outstanding at the end of the year was Nil); threaten the existence of the Company. The and SMA Nutrition India Private Limited (Fellow details of Risk Management Committee are Subsidiary): ` 35 million at the interest rate of 8.80% for general business purpose (Loan included in the Corporate Governance Report. outstanding at the end of the year was Nil). For details of investments, please refer Public Deposits note no.12 and 14 forming part of fi nancial statements. Your Company had not accepted any Public Deposits under Chapter V of the Act. Related Party Transactions Signifi cant and Material orders Your Company has formulated a policy on related passed by the Regulators/Courts/ party transactions which is also available on Tribunals Company’s website at https://www.nestle.in/ investors/policies. This policy deals with the No signifi cant or material orders were passed review and approval of related party transactions. by the Regulators or Courts or Tribunals which The Board of Directors of the Company has impacts the going concern status and Company’s approved the criteria for making the omnibus operations in future.

30 Complaint fi led in National Secretary, on a confi dential basis, any practices or actions believed to be inappropriate or illegal Commission under the Nestlé India Code of Business Conduct (“the Code”). The Code provides for adequate The Union of India, Department of Consumer safeguards against victimisation of director(s)/ Affairs in 2015 had fi led a complaint before employee(s) who avail the mechanism and the National Consumer Dispute Redressal also provides for direct access to the Chairman Commission on the allegation that by selling MAGGI Noodles in the past, the Company of the Audit Committee in exceptional cases. has indulged in an unfair trade practice, sold It is affi rmed that no person has been denied defective goods to the public and sold goods access to the Audit Committee. As an additional which will be hazardous. Complaint seeks facility to all the Directors and Employees of compensation of ` 2,845.5 million and punitive the Company, the Company under the Code damages of ` 3554.1 million. Your Company has provides Integrity Reporting System (“IRS”), challenged the complaint. The court proceedings an independent third party operated free phone are currently ongoing. and web based facility for the directors and employees of the Company across all locations. Internal Financial Controls and their The details of IRS along with FAQs are available adequacy to the Directors and Employees on the Company’s intranet portal. Further, the Company The Directors had laid down internal fi nancial has appointed an Ombudsman for Infant Code, controls to be followed by the Company and under which employees can report Infant Code such policies and procedures adopted by the violations directly to the Ombudsman, with Company for ensuring the orderly and effi cient adequate safeguard to protect the employee conduct of its business, including adherence reporting. The Company also provides an to Company’s policies, the safeguarding of its independent third party operated free phone assets, the prevention and detection of frauds and web based facility, "Tell Us", to all internal and errors, the accuracy and completeness and external stakeholders with a dedicated of the accounting records, and the timely communication channel for reporting potential preparation of reliable fi nancial information. instances of non-compliance with Nestlé The Audit Committee evaluates the internal Corporate Business Principles. Details of "Tell fi nancial control system periodically. Us" are available on www.nestle.in Audit Committee Information regarding Conservation The Audit Committee comprises Independent of Energy,Technology Absorption Non-Executive Directors, namely, M/s. AK and Foreign Exchange Earnings and Mahindra (Chairman), Ravinder Narain and Outgo Rajya Vardhan Kanoria. Powers and role of the Audit Committee are included in the Corporate Information required under Section 134(3)(m) Governance Report. All the recommendation of the Act read with Rule 8 of the Companies made by the Audit Committee were accepted (Accounts) Rules, 2014 for the fi nancial year by the Board of Directors. ended 31st December, 2016 in relation to the Vigil Mechanism Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo is The Vigil Mechanism of the Company is given in the Annexure - 7 forming an integral part governed by signifi cant documents “The Nestlé of this report. Corporate Business Principles”, “The Nestlé Information regarding Employees Management and Leadership Principles” and “Nestlé Code of Business Conduct”. The said and related disclosures mechanism is available to the Director(s)/ Your Company considers people as its biggest Employee(s), who can report to the Company assets and ‘Believing in People’ is at the

Nestlé India Limited • Annual Report 2016 31 heart of its human resource strategy. It has Trade Relations put concerted efforts in talent management and succession planning practices, strong The Company maintained healthy, cordial and performance management and learning and harmonious industrial relations at all levels. training initiatives to ensure that your Company Despite severe competition, the enthusiasm consistently develops inspiring, strong and and unstinting efforts of the employees have credible leadership. During the year the focus enabled the Company to remain at the forefront of your Company was to ensure that young of the Industry. talent is nurtured and mentored consistently, that rewards and recognition are commensurate Your Company continued to receive co-operation with performance and that employees have the and unstinted support from the distributors, opportunity to develop and grow. retailers, stockists, suppliers and others associated with the Company as its trading Your Company has established an organization partners. The Directors wish to place on structure that is agile and focused on delivering record their appreciation for the same and your business results. With regular communication Company will continue in its endeavor to build and sustained efforts it is ensuring that and nurture strong links with trade, based on employees are aligned on common objectives mutuality, respect and co-operation with each and have the right information on business other and consistent with consumer interest. evolution. Your Company strongly believes in fostering a culture of trust and mutual respect Appreciation in all its employees seek to ensure that Nestlé values and principles are understood by all and Your Company has been able to operate are the reference point in all people matters. effi ciently because of the culture of professionalism, creativity, integrity and The statement of Disclosure of Remuneration continuous improvement in all functions and under Section 197 of the Act and Rule 5(1) of areas as well as the effi cient utilization of the the Companies (Appointment and Remuneration Company's resources for sustainable and of Managerial Personnel) Rules, 2014 (“Rules”), profi table growth. is appended as Annexure - 8 to the Report. The information as per Rule 5(2) of the Rules, The Directors hereby wish to place on record forms part of this Report. However, as per fi rst their appreciation of the effi cient and loyal proviso to Section 136(1) of the Act and second services rendered by each and every employee, proviso of Rule 5(2) of the Rules, the Report without whose whole-hearted efforts, the overall and Financial Statements are being sent to satisfactory performance would not have been the Members of the Company excluding the possible. statement of particulars of employees under Your Directors look forward to the long term Rule 5(2) of the Rules. Any Member interested in future with confi dence. obtaining a copy of the said statement may write to the Company Secretary at the Registered Offi ce of the Company. On behalf of the Board of Directors

The Company has a Policy on “Prevention of Sexual Harassment of Women at Workplace” and matters connected therewith or incidental Suresh Narayanan thereto covering all the aspects as contained Chairman and Managing Director under the “The Sexual Harassment of Women at Workplace (Prohibition, Prevention and Redressal) Act, 2013”. The Company received th two complaints under the Policy, both of which Date : 15 February, 2017 were disposed of. Place : Gurgaon

32 INDEPENDENT AUDITORS’ REPORT Report on the Financial Statements TO THE MEMBERS OF We have audited the accompanying financial statements of NESTLÉ INDIA LIMITED NESTLÉ INDIA LIMITED (“the Company”), which comprise the Balance Sheet as at 31st December, 2016, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements

The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder and the Order under section 143 (11) of the Act. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes

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evaluating the appropriateness of the accounting policies used opinion and to the best of our information and according and the reasonableness of the accounting estimates made by the to the explanations given to us: Company’s Directors, as well as evaluating the overall presentation i. The Company has disclosed the impact of of the financial statements. pending litigations on its financial position in its We believe that the audit evidence we have obtained is sufficient financial statements - Refer Note 28 and 39 to and appropriate to provide a basis for our audit opinion on the the financial statements; financial statements. ii. The Company did not have any long-term contracts Opinion including derivative contracts for which there were any material foreseeable losses; In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give iii. There has been no delay in transferring amounts, the information required by the Act in the manner so required and required to be transferred, to the Investor give a true and fair view in conformity with the accounting principles Education and Protection Fund by the Company- generally accepted in India, of the state of affairs of the Company Refer Note 9 to the financial statements. as at 31st December, 2016, and its profit and its cash flows for the 2. As required by the Companies (Auditor’s Report) Order, 2016 year ended on that date. (“the Order”) issued by the Central Government in terms Report on Other Legal and Regulatory Requirements of Section 143(11) of the Act, we give in the “Annexure B” statement on the matters specified in paragraphs 3 and 4 of 1. As required by Section 143(3) of the Act, we report, to the the Order, to the extent applicable. extent applicable, that: For A. F. FERGUSON & CO. (a) We have sought and obtained all the information and Chartered Accountants explanations which to the best of our knowledge and (Firm’s Registration No. 112066W) belief were necessary for the purposes of our audit. (b) In our opinion, proper books of account as required by Manjula Banerji law have been kept by the Company so far as it appears (Partner) from our examination of those books. (Membership No. 86423) NEW DELHI, February 15, 2017 (c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account. (d) In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under section 133 of the Act. (e) On the basis of the written representations received from the directors as on 31st December, 2016 taken on record by the Board of Directors, none of the directors is disqualified as on 31st December, 2016 from being appointed as a director in terms of Section 164 (2) of the Act. (f) With respect to the adequacy of the internal financial controls over financial reporting of the Company and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”. Our report expresses an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting. (g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our

2 Nestle AR 2016-17 070417.indd 34 4/7/2017 4:17:05 PM ANNEXURE “A” TO THE INDEPENDENT AUDITOR’S REPORT appropriate to provide a basis for our audit opinion on the Company’s (Referred to in paragraph 1 (f) under ‘Report on Other Legal internal financial controls system over financial reporting. and Regulatory Requirements’ of our report of even date) Meaning of Internal Financial Controls Over Financial Reporting Report on the Internal Financial Controls Over Financial A company’s internal financial control over financial reporting is Reporting under Clause (i) of Sub-section 3 of Section 143 of a process designed to provide reasonable assurance regarding the Companies Act, 2013 (“the Act”) the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally We have audited the internal financial controls over financial reporting accepted accounting principles. A company’s internal financial of NESTLÉ INDIA LIMITED (“the Company”) as of December 31, control over financial reporting includes those policies and 2016 in conjunction with our audit of the financial statements of the procedures that (1) pertain to the maintenance of records that, in Company for the year ended on that date. reasonable detail, accurately and fairly reflect the transactions and Management’s Responsibility for Internal Financial Controls dispositions of the assets of the company; (2) provide reasonable The Company’s management is responsible for establishing and assurance that transactions are recorded as necessary to permit maintaining internal financial controls based on the internal control preparation of financial statements in accordance with generally over financial reporting criteria established by the Company accepted accounting principles, and that receipts and expenditures considering the essential components of internal control stated in of the company are being made only in accordance with the Guidance Note on Audit of Internal Financial Controls Over authorisations of management and directors of the company; and Financial Reporting issued by the Institute of Chartered Accountants (3) provide reasonable assurance regarding prevention or timely of India. These responsibilities include the design, implementation detection of unauthorised acquisition, use, or disposition of the and maintenance of adequate internal financial controls that were company’s assets that could have a material effect on the financial operating effectively for ensuring the orderly and efficient conduct statements. of its business, including adherence to company’s policies, the Inherent Limitations of Internal Financial Controls Over safeguarding of its assets, the prevention and detection of frauds Financial Reporting and errors, the accuracy and completeness of the accounting Because of the inherent limitations of internal financial controls over records, and the timely preparation of reliable financial information, financial reporting, including the possibility of collusion or improper as required under the Companies Act, 2013. management override of controls, material misstatements due Auditor’s Responsibility to error or fraud may occur and not be detected. Also, projections Our responsibility is to express an opinion on the Company’s internal of any evaluation of the internal financial controls over financial financial controls over financial reporting based on our audit. We reporting to future periods are subject to the risk that the internal conducted our audit in accordance with the Guidance Note on financial control over financial reporting may become inadequate Audit of Internal Financial Controls Over Financial Reporting (the because of changes in conditions, or that the degree of compliance “Guidance Note”) issued by the Institute of Chartered Accountants with the policies or procedures may deteriorate. of India and the Standards on Auditing prescribed under Section Opinion 143(10) of the Companies Act, 2013, to the extent applicable to In our opinion, to the best of our information and according to the an audit of internal financial controls. Those Standards and the explanations given to us, the Company has, in all material respects, Guidance Note require that we comply with ethical requirements and an adequate internal financial controls system over financial plan and perform the audit to obtain reasonable assurance about reporting and such internal financial controls over financial reporting whether adequate internal financial controls over financial reporting were operating effectively as at December 31, 2016, based on the was established and maintained and if such controls operated internal control over financial reporting criteria established by the effectively in all material respects. Company considering the essential components of internal control Our audit involves performing procedures to obtain audit evidence stated in the Guidance Note on Audit of Internal Financial Controls about the adequacy of the internal financial controls system over Over Financial Reporting issued by the Institute of Chartered financial reporting and their operating effectiveness. Our audit of Accountants of India. internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial For A. F. FERGUSON & CO. reporting, assessing the risk that a material weakness exists, and Chartered Accountants testing and evaluating the design and operating effectiveness of (Firm’s Registration No. 112066W) internal control based on the assessed risk. The procedures selected depend on the auditor’s judgement, including the assessment of the Manjula Banerji risks of material misstatement of the financial statements, whether (Partner) due to fraud or error. (Membership No. 86423) NEW DELHI, February 15, 2017 We believe that the audit evidence we have obtained is sufficient and

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ANNEXURE B TO THE INDEPENDENT AUDITORS’ REPORT (Referred to in paragraph 2 under ‘Report on Other Legal and provisions of Sections 185 and 186 of the Companies Act, Regulatory Requirements’ section of our report of even date) 2013 in respect of grant of loans, making investments and (i) (a) The Company has maintained proper records showing providing guarantees and securities, as applicable. full particulars, including quantitative details and (v) According to the information and explanations given to us, the situation of fixed assets. Company does not have any outstanding deposits during the (b) The fixed assets were physically verified during the year and has not accepted any deposits during the year. year by the Management in accordance with a regular (vi) The maintenance of cost records has been specified by the programme of verification which, in our opinion, Central Government under section 148(1) of the Companies provides for physical verification of all the fixed assets Act, 2013 for Milk Powder. We have broadly reviewed the at reasonable intervals. According to the information cost records maintained by the Company pursuant to the and explanations given to us, no material discrepancies Companies (Cost Records and Audit) Rules, 2014, as were noticed on such verification. amended prescribed by the Central Government under (c) According to the information and explanations given to sub-section (1) of Section 148 of the Companies Act, 2013, us and the records examined by us and based on the and are of the opinion that, prima facie, the prescribed cost examination of the registered sale deed / transfer deed records have been made and maintained. We have, however, / conveyance deed provided to us, we report that, the not made a detailed examination of the cost records with a title deeds, comprising all the immovable properties of view to determine whether they are accurate or complete. land and buildings which are freehold, are held in the (vii) According to the information and explanations given to us, in name of the Company as at the balance sheet date. In respect of statutory dues: respect of immovable properties of land and buildings (a) The Company has been regular in depositing undisputed that have been taken on lease and disclosed as fixed statutory dues, including Provident Fund, Employees’ asset in the financial statements, the lease agreements State Insurance, Income-tax, Sales Tax, Service Tax, are in the name of the Company, where the Company is Customs Duty, Excise Duty, Value Added Tax, Cess the lessee in the agreement. and other material statutory dues applicable to it to the (ii) As explained to us, the inventories were physically verified appropriate authorities. during the year by the Management at reasonable intervals (b) There were no undisputed amounts payable in respect and no material discrepancies were noticed on physical of Provident Fund, Employees’ State Insurance, Income- verification. tax, Sales Tax, Service Tax, Customs Duty, Excise Duty, (iii) The Company has not granted any loans, secured or Value Added Tax, Cess and other material statutory dues unsecured, to companies, firms, Limited Liability Partnerships in arrears as at December 31, 2016 for a period of more or other parties covered in the register maintained under than six months from the date they became payable. section 189 of the Companies Act, 2013. (c) Details of dues of Income-tax, Sales Tax, Service Tax, Customs Duty, Excise Duty, and Value Added Tax which (iv) In our opinion and according to the information and have not been deposited as on December 31, 2016 on explanations given to us, the Company has complied with the account of disputes are given below:

Name of the Nature of Amount* Period to which the amount relates Forum where dispute is pending Statute Dues (` In Million) (various years covering the period) Central Excise Excise Duty 45.7 1996-2004 Supreme Court Laws 84.5 2005-2006, 2007-2014 Customs, Excise and Service Tax Appellate Tribunal 8.2 2000, 2011-2015 Appellate authority upto Commissioners’ level Service Tax 412.6 2005-2007, 2008, 2010, 2011, 2013, Customs, Excise and Service Tax Appellate 2014 Tribunal Customs Laws Customs 48.9 2008-2013 Customs, Excise and Service Tax Appellate Duty Tribunal 50.2 2008 – 2009 Appellate authority upto Commissioners’ level

2 Nestle AR 2016-17 070417.indd 36 4/7/2017 4:17:05 PM Name of the Nature of Amount* Period to which the amount relates Forum where dispute is pending Statute Dues (` In Million) (various years covering the period) Sales Tax Laws Sales Tax/ 61.3 2000-2006, 2007-2009, 2014-2015 High Court VAT 107.2 2000-2005, 2006-2007, 2010-2012 Appellate Tribunal 254.3 2004-2014 Appellate authority upto Commissioners’ level Income Tax Act, Income tax 0.7 2008-2009, 2010-2011 Income Tax Appellate Tribunal 1961 1,657.4 2011-2014 Appellate authority upto Commissioners’ level * Amount includes interest and penalty as per demand orders wherever quantified in the Order, and excludes amount of ` 367.0 Million paid under protest. The following matters, which have been decided in favour of the Company but the department has preferred appeals at higher levels, have been excluded from the table above and are given below: Name of the Nature of Amount Period to which the amount relates Forum where dispute is pending Statute Dues (` In Million) (various years covering the period) Central Excise Excise Duty 7.5 2004 – 2006 Supreme Court Laws 0.9 1994 High Court 6.6 2005 – 2006 Customs, Excise and Service Tax Appellate Tribunal Service Tax 1.4 2008 Customs, Excise and Service Tax Appellate Tribunal Sales Tax Laws Sales Tax/ 17.1 1997 - 1998, 2003 High Court VAT Income Tax Act, Income tax 1,210.7 1996 - 2001, 2004-2008 Supreme Court 1961 335.8 2000 – 2004 High Court 1,081.0 2008 – 2011 Income Tax Appellate Tribunal

(viii) In our opinion and according to the information and applicable, for all transactions with the related parties and explanations given to us, the Company has not defaulted in the details of related party transactions have been disclosed the repayment of loans or borrowings to financial institutions, in the financial statements etc. as required by the applicable banks and government. The Company has not issued any accounting standards. debentures. (xiv) During the year the Company has not made any preferential (ix) The Company has not raised moneys by way of initial public allotment or private placement of shares or fully or partly offer or further public offer (including debt instruments) or term convertible debentures and hence reporting under clause (xiv) loans and hence reporting under clause (ix) of the CARO of CARO 2016 is not applicable to the Company. 2016 Order is not applicable. (xv) In our opinion and according to the information and (x) To the best of our knowledge and according to the information explanations given to us, during the year the Company has and explanations given to us, no fraud by the Company and not entered into any non-cash transactions with its directors or no material fraud on the Company by its officers or employees persons connected with him and hence provisions of section has been noticed or reported during the year. 192 of the Companies Act, 2013 are not applicable. (xi) In our opinion and according to the information and (xvi) The Company is not required to be registered under section explanations given to us, the Company has paid / provided 45-IA of the Reserve Bank of India Act, 1934. managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read For A. F. FERGUSON & CO. with Schedule V to the Companies Act, 2013. Chartered Accountants (Firm’s Registration No. 112066W) (xii) The Company is not a Nidhi Company and hence reporting under clause (xii) of the CARO 2016 Order is not applicable. Manjula Banerji (xiii) In our opinion and according to the information and (Partner) explanations given to us the Company is in compliance with (Membership No. 86423) Section 188 and 177 of the Companies Act, 2013, where NEW DELHI, February 15, 2017

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BALANCE SHEET AS AT DECEMBER 31, 2016 NOTES 2016 2015 (` in million) (` in million) EQUITY AND LIABILITIES SHAREHOLDERS’ FUNDS Share capital 3 964.2 964.2 Reserves and surplus 4 29,172.8 30,137.0 27,214.2 28,178.4 NON - CURRENT LIABILITIES Long-term borrowings 5 331.5 167.9 Deferred tax liabilities (net) 6 1,542.1 1,729.3 Long-term provisions 7 19,722.1 21,595.7 15,971.7 17,868.9 CURRENT LIABILITIES Short-term borrowings 8 - 9.4 Trade payables Payable to micro enterprises and small enterprises 42 48.8 37.5 Other payables 7,942.8 7,456.6 Other current liabilities 9 5,128.4 4,659.3 Short-term provisions 10 3,207.0 16,327.0 2,653.2 14,816.0 68,059.7 60,863.3 ASSETS NON - CURRENT ASSETS Fixed assets 11 Tangible assets 27,294.6 28,978.5 Capital work-in-progress 1,881.7 2,307.9 29,176.3 31,286.4 Non-current investments 12 4,743.1 3,417.8 Long-term loans and advances 13 1,350.4 1,304.3 35,269.8 36,008.5 CURRENT ASSETS Current investments 14 12,750.4 9,831.4 Inventories 15 9,431.8 8,208.1 Trade receivables 16 979.3 784.2 Cash and bank balances 17 8,800.0 4,995.5 Short-term loans and advances 18 570.2 888.4 Other current assets 19 258.2 32,789.9 147.2 24,854.8 68,059.7 60,863.3 See accompanying notes 1 to 47 forming part of the financial statements

SURESH NARAYANAN SHOBINDER DUGGAL B. MURLI Chairman and Managing Director Director - Finance & Control and CFO Sr. VP - Legal & Company Secretary (DIN-07246738) (DIN-00039580) In terms of our report attached February 15, 2017 For A.F. FERGUSON & CO. Gurgaon Firm’s Registration No. - 112066W Chartered Accountants February 15, 2017 (MANJULA BANERJI) New Delhi Partner

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STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED DECEMBER 31, 2016 NOTES 2016 2015 (` in million) (` in million) REVENUE Gross Sales of products 20 94,917.2 84,304.4 Less: Excise duty 3,324.4 91,592.8 3,071.7 81,232.7 Other operating revenues 20 645.2 520.4 A Total revenue from operations 92,238.0 81,753.1 EXPENSES 21 Cost of materials consumed 22 37,750.9 33,588.7 Purchases of stock-in-trade 1,153.8 980.7 Changes in inventories of finished goods, work-in-progress 23 (107.8) 119.7 and stock-in-trade Employee benefits expense 24 9,859.6 8,374.3 Depreciation 11 3,536.2 3,472.6 Other expenses 25 23,790.3 21,264.3 Impairment loss on fixed assets 11 118.3 282.2 Net provision for contingencies (from operations) 28 418.0 333.1 B Total Expenses 76,519.3 68,415.6 C PROFIT FROM OPERATIONS (A-B) (Refer Note - 1.1) 15,718.7 13,337.5 D Other income 26 1,493.9 1,100.9 E Finance costs 27 35.1 32.9 F Employee benefits expense due to passage of time 29 874.0 753.2 G Net provision for contingencies (others) 28 1,266.7 301.5 H PROFIT BEFORE EXCEPTIONAL ITEMS, CORPORATE 15,036.8 13,350.8 SOCIAL RESPONSIBILITY EXPENSE AND TAXATION (C+D-E-F-G) I Exceptional items 30 307.8 5,008.4 J Corporate social responsibility expense 31 313.6 206.1 K PROFIT BEFORE TAXATION (H-I-J) 14,415.4 8,136.3 L Tax expense Current tax 5,337.1 2,898.9 Deferred tax (187.1) 5,150.0 (395.3) 2,503.6 M PROFIT AFTER TAXATION (K-L) 9,265.4 5,632.7 Weighted average number of equity shares outstanding Nos. 96,415,716 96,415,716 Basic and Diluted Earnings Per Share (Face value ` 10) ` 96.10 58.42 See accompanying notes 1 to 47 forming part of the financial statements

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CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2016 2016 2015 (` in million) (` in million) A CASH FLOW FROM OPERATING ACTIVITIES Net profit before tax 14,415.4 8,136.3 Adjustments for : Other income considered separately (1,493.9) (1,100.9) Unrealised exchange differences 10.2 (2.9) Finance costs 35.1 32.9 Deficit/ (Surplus) on fixed assets sold/scrapped/written off (net) 13.7 66.0 Depreciation 3,536.2 3,672.8 Provision for diminution in the value of non-current investment 200.0 - Impairment loss on fixed assets 118.3 282.2 Operating profit before working capital changes 16,835.0 11,086.4 Adjustments for : Decrease/(increase) in trade receivables (192.2) 206.0 Decrease/(increase) in loans & advances and other assets (59.6) (32.9) Decrease/(increase) in inventories (1,223.7) 232.9 Increase/(decrease) in trade payables and other liabilities (excluding book overdraft) 554.5 788.6 Increase/(decrease) in book overdraft (7.9) 19.4 Increase/(decrease) in provision for contingencies 1,684.7 634.6 Increase/(decrease) in provision for employee benefits 2,097.3 1,467.8 Cash generated from operations 19,688.1 14,402.8 Direct taxes paid (5,029.0) (3,421.8) Net cash from operating activities 14,659.1 10,981.0 B CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets (2,070.1) (1,508.1) Sale of fixed assets 936.8 14.7 Purchase of tax free long term bonds (1,527.7) (373.2) Decrease/(increase) in loans to employees 9.4 55.9 Dividend received on mutual funds, current - non trade investments 129.4 119.8 Interest received on bank deposits, investments, tax free long term bonds and loans etc. 1,248.1 986.1 Net cash used in investing activities (1,274.1) (704.8) C CASH FLOW FROM FINANCING ACTIVITIES Proceeds/ (repayments) of other short - term borrowings - net (9.4) (31.7) Increase in deferred VAT liabilities under state government schemes 163.6 13.3 Finance costs (35.1) (32.9) Dividends (5,640.3) (4,097.7) Dividend distribution tax (1,148.3) (834.2) Capital subsidy 4.0 - Net cash used in financing activities (6,665.5) (4,983.2) NET INCREASE IN CASH AND CASH EQUIVALENTS (A+B+C) 6,719.5 5,293.0

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CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2016 2016 2015 (` in million) (` in million) Cash and cash equivalents (Refer note 17(a)) 4,892.7 4,357.5 Current investments (Refer note 14) 9,831.4 5,073.6 Total cash and cash equivalents as at opening (as per Accounting Standard-3) 14,724.1 9,431.1 Cash and cash equivalents (Refer note 17(a)) 8,693.2 4,892.7 Current investments (Refer note 14) 12,750.4 9,831.4 Total cash and cash equivalents as at closing (as per Accounting Standard-3) 21,443.6 14,724.1 NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS 6,719.5 5,293.0 Notes: The above Cash Flow Statement has been prepared under the “Indirect Method” as set out in the Accounting Standard (AS - 3) on ‘Cash Flow Statement’.

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES 1.1 BASIS OF ACCOUNTING AND PREPARATION OF FINANCIAL STATEMENTS

The financial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notified under Section 133 of the Companies Act, 2013 (“the 2013 Act”) and the relevant provisions of the 2013 Act, as applicable. The financial statements have been prepared on going concern basis under the historical cost convention on accrual basis. The accounting policies have been consistently applied by the Company unless otherwise stated. The preparation of financial statements requires management to exercise judgement and to make estimates and assumptions that affects the reported amounts of revenues, expenses, assets and liabilities. These estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on a periodic basis. Revisions to accounting estimates are recognised in the period in which the results are known/materialise. The Company has opted to continue with the period of 1st day of January to 31st day of December, each year as its financial year for the purpose of preparation of financial statements under the provisions of Section 2(41) of the Companies Act, 2013 which the Hon’ble Company Law Board has allowed. The Company has elected to present “Profit from Operations” as a separate line item on the face of the Statement of Profit and Loss. “Profit from Operations” is arrived at before Other income, Finance costs, Employee benefits expense due to passage of time, Net provision for contingencies (others), Exceptional items, Corporate social responsibility expense and Tax expense. The Company has ascertained its operating cycle as 12 months for the purpose of current / non-current classification of assets and liabilities. This is based on the nature of products and the time between acquisition of assets for processing and their realisation in cash and cash equivalents. Previous year’s figures have been regrouped / reclassified wherever necessary to conform with the current year’s classification / disclosure. 1.2 REVENUE RECOGNITION

Revenue from sale of goods is recognised on transfer of significant risks and rewards of ownership in the goods to the buyer which is generally at the time of dispatch to the customer. Sales are recorded net of returns (if any), trade discounts, rebates, other pricing discounts to trade/consumer and value added tax/sales tax. Interest on investments/loans is recognised on a time proportion basis. Dividend income on investments is recognised when the right to receive the payment is established. 1.3 EMPLOYEE BENEFITS Employee benefit plans

The Company makes contributions to defined contribution plans e.g. Provident Fund, Employee State Insurance, National Pension System etc. for eligible employees and these contributions are charged to statement of profit and loss on accrual basis. For defined benefit plans i.e. gratuity and unfunded pension, the provision is made on the basis of an actuarial valuation carried out by an independent actuary as at the year-end. Actuarial gains and losses are recognised in full in the statement of profit and loss during the year in which they occur. Provision for gratuity is recognised after taking into account the return on plan assets maintained under the gratuity trust. As these liabilities are of relatively long term in nature, the actuarial assumptions take in account the requirements of the relevant accounting standard coupled with a long term view of the underlying variables / trends, wherever required. Long term employee benefits such as compensated absences and long service awards are charged to statement of profit and loss on the basis of an actuarial valuation carried out by an independent actuary as at the year-end. Actuarial gains and losses are recognised in full in the statement of profit and loss during the year in which they occur.

2 Nestle AR 2016-17 070417.indd 42 4/7/2017 4:17:07 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS Total cost of the employee benefit plans continue to be fully charged to the statement of profit and loss. While the amounts relating to current service cost and actuarial gains/ losses continue to be included in “Employee Benefits Expense”, the increase in cost of employee benefit plans, due to passage of time (net of return on plan assets) is presented under “Employee Benefits Expense due to passage of time” in line with the Accounting Standard 15 on “Employee Benefits”. Other employee benefits

Short term employee benefits including performance incentives, are charged to statement of profit and loss on an undiscounted, accrual basis during the period of employment. Liability for Nestlé Restricted Stock Unit (RSU) Plan/ Performance Share Unit (PSU) Plan of Nestlé S.A., whereby select employees of the Company are granted non-tradable units with the right to obtain Nestlé S.A. shares or cash equivalent is charged to statement of profit and loss over the vesting period. The Company remeasures the outstanding units at each balance sheet date taking into account the Nestlé S.A. share price and exchange rate as at the balance sheet date. The resultant gain/ (loss) on remeasurement is charged to statement of profit and loss over the vesting period. 1.4 FIXED ASSETS

Fixed assets are stated at cost (net of CENVAT or any other recoverable taxes) less accumulated depreciation and accumulated impairment losses, if any. Cost is inclusive of freight, duties, levies and any directly attributable cost of bringing the assets to their working condition for intended use (also refer to accounting policies on ‘Foreign exchange transactions’ and ‘Borrowing costs’ below). Profit or loss on disposal/ scrapping/ write off/ retirement from active use of tangible assets are recognised in the statement of profit and loss. 1.5 DEPRECIATION / AMORTISATION

Effective 1st January, 2015, the Company has reviewed and reassessed useful lives of fixed assets as per Schedule II to the Companies Act, 2013. Accordingly, depreciation has been computed on reassessed useful lives based on technical evaluation of relevant class of assets including components thereof. Depreciation is provided as per the straight line method computed basis useful lives of fixed assets as follows: Buildings : 25 - 40 years Plant & Machinery : 5 - 25 years Office Equipments : 5 years Furniture and fixtures : 5 years Vehicles : 5 years Leasehold land and related improvements : Lease period Information technology equipment : 3 - 5 years Intangible fixed assets : Over their estimated useful life 1.6 IMPAIRMENT OF FIXED ASSETS

At each balance sheet date, carrying amount of fixed assets is reviewed for any possible impairment taking into account the long term view of the underlying businesses and related variables. For the purpose of assessing impairment, assets are grouped at the levels for which there are separately identifiable cash flows (cash generating unit). If any impairment indicator exists, estimate of the recoverable amount of the fixed asset/cash generating unit to which the asset belongs is made. An impairment loss is recognised whenever the carrying amount of an asset/ cash generating unit exceeds its recoverable amount. The recoverable amount is the greater of the net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value based on an appropriate discount rate. Reversal of impairment losses recognised in earlier years is recorded when there is an indication that the impairment losses recognised for the asset/cash generating unit no longer exist or have decreased. However, the increase in carrying amount of an asset due to reversal of an impairment loss is recognised to the extent it does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised for that asset/cash generating unit in earlier years.

2 Nestle AR 2016-17 070417.indd 43 4/7/2017 4:17:07 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS 1.7 LEASES

Lease rentals for operating leases are charged to statement of profit and loss on accrual basis in accordance with the respective lease agreements. 1.8 FOREIGN EXCHANGE TRANSACTIONS

Transactions in foreign currency are recorded on initial recognition at the exchange rate prevailing on the date of the transaction. Monetary items (i.e. receivables, payables, loans etc.) denominated in foreign currency are reported using the closing exchange rate on each balance sheet date. The exchange difference arising on the settlement or reporting of monetary items at rates different from rates at which these were initially recorded / reported in previous financial statements, are recognised in the statement of profit and loss in the period in which they arise except for the items covered below: In line with notification no. G.S.R. 225(E) dated March 31, 2009 and subsequent clarification via circular no. 25/2012 dated August 09, 2012 issued by Ministry of Corporate Affairs, Government of India, the Company has opted for adjusting the exchange differences, arising on long term foreign currency monetary borrowings relating to acquisition of depreciable assets to the cost of the those assets. In case of forward exchange contracts, the difference between the exchange rate on the date of inception/ last reporting date and the exchange rate at the settlement / reporting date is recognised as exchange difference and the premium paid on forward contracts is recognised over the life of the contract. 1.9 BORROWING COSTS

Borrowing costs directly attributable to acquisition or construction of fixed assets which take substantial period of time to get ready for their intended use are treated as addition/ reduction to capital expenditure in accordance with Accounting Standard 16 on “Borrowing Costs” and notification no. G.S.R. 225(E) dated March 31, 2009 and subsequent clarification via circular no. 25/2012 dated August 09, 2012 issued by Ministry of Corporate Affairs, Government of India. Other borrowing costs are charged to the statement of profit and loss. 1.10 TAXATION

Provision for taxation for the period comprises of a) estimated tax expense which has accrued on the profit for the periodApril 1, 2016 to December 31, 2016 and, b) the residual tax expense for the period April 1, 2015 to March 31, 2016 arising out of the finalisation of fiscal accounts (Assessment Year 2016-2017), under the provisions of the Indian Income tax Act, 1961. Deferred tax is recognised, subject to the consideration of prudence, on timing difference, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 1.11 CONTINGENT LIABILITIES AND PROVISIONS

Contingent liabilities are disclosed after a careful evaluation of the facts and legal aspects of the matter involved, in line with the provisions of Accounting Standard (AS) 29 on ‘Provisions, Contingent Liabilities and Contingent Assets’. Provisions are recognised when the Company has a present obligation (legal/constructive) and on management judgement as a result of a past event, for which it is probable that a cash outflow will be required and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not require an outflow of resources. When there is a possible obligation or a present obligation in respect of which likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the financial statements since this may result in the recognition of income that may never be accrued/ realised.

2 Nestle AR 2016-17 070417.indd 44 4/7/2017 4:17:07 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS 1.12 INVESTMENTS

Current investments are stated at the lower of cost or fair value. Non-current investments are stated at cost. Provision for diminution, if any, in the value of non-current investments is made only if such decline is not temporary in nature. 1.13 INVENTORIES

Inventories are stated at cost or net realisable value, whichever is lower. The bases of determining cost for various categories of inventories are as follows: Raw and packing material : First-in-first out Stock-in-trade (Goods purchased for resale) : First-in-first out Stores and spare parts : Weighted average Work-in-progress and finished goods : Material cost plus appropriate share of production Overheads and excise duty, wherever applicable

2. Financial statements for the year ended 31st December, 2016 are not entirely comparable with the figures of the previous year due to MAGGI Noodles issue in 2015 (Refer note - 30 and also note - 21) and rebuild of the MAGGI Noodles business in 2016.

2016 2015 Amount Amount No. of shares No. of shares (` in million) (` in million) 3 - SHARE CAPITAL Authorised Equity shares of ` 10 each 100,000,000 1,000.0 100,000,000 1,000.0 Issued, subscribed and fully paid up Equity shares of ` 10 each 96,415,716 964.2 96,415,716 964.2 (a) Reconciliation of number of shares and amount outstanding at the beginning and at the end of the year

Shares outstanding at the beginning of the year 96,415,716 964.2 96,415,716 964.2 Movement during the year - - - - Shares outstanding at the end of the year 96,415,716 964.2 96,415,716 964.2 (b) Rights, preferences and restrictions attached to equity shares

The Company has only one class of equity shares with face value of ` 10 each, ranking pari passu. (c) Equity shares held by holding companies

No. of shares No. of shares Nestlé S.A. 33,051,399 33,051,399 Maggi Enterprises Limited 27,463,680 27,463,680 (Ultimate holding company being Nestlé S.A.) (d) Shareholders holding more than 5% of equity shares

Serial No. Name of the shareholder No. of shares % of holding No. of shares % of holding 1 Nestlé S.A. 33,051,399 34.28 33,051,399 34.28 2 Maggi Enterprises Limited 27,463,680 28.48 27,463,680 28.48

2 Nestle AR 2016-17 100417.indd 45 4/10/2017 2:08:53 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 4 - RESERVES AND SURPLUS (a) Capital subsidy Opening balance 14.5 14.5 Add: Additions during the year 4.0 - Closing balance 18.5 14.5 (b) General reserve Opening balance 8,374.3 8,568.2 Less: Depreciation in accordance with the transitional provision as specified in - 193.9 Schedule II to the Companies Act, 2013 (Refer Note 11 - Fixed Assets) Closing balance 8,374.3 8,374.3 (c) Surplus in statement of profit and loss Opening balance 18,825.4 18,825.2 Add: Profit after taxation 9,265.4 5,632.7 Amount available for appropriation 28,090.8 24,457.9 Less: Appropriations Dividends: Interim (` 40.00 per share, Previous year ` 30.00 per share) 3,856.6 2,892.5 Final - proposed (` 23.00 per share, Previous year ` 18.50 per share) 2,217.6 1,783.7 Dividend distribution tax 1,236.6 956.3 Closing balance 20,780.0 18,825.4 29,172.8 27,214.2

5 - LONG TERM BORROWINGS

Unsecured loans Deferred VAT liabilities - State of Karnataka (1) 204.2 77.5 - State of Himachal Pradesh (2) 127.3 90.4 331.5 167.9

(1) Interest free, repayable after 10 years from the date of disbursement in 10 equal annual installments commencing from year 2024. (2) Interest free, repayable after 8 years from the year of deferment commencing from year 2021.

2 Nestle AR 2016-17 070417.indd 46 4/7/2017 4:17:08 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 6 - DEFERRED TAX LIABILITIES (NET) Deferred tax liabilities Difference between book and tax depreciation 2,709.1 2,872.9 Difference in inventory valuation 198.5 - Others 14.0 16.7 2,921.6 2,889.6 Deferred tax assets Provision for contingencies 1,033.8 900.6 Provision for compensated absences and gratuity 287.4 220.8 Provision for doubtful receivables and advances 19.9 21.9 Other items deductible on payment 38.4 17.0 1,379.5 1,160.3 1,542.1 1,729.3

7 - LONG TERM PROVISIONS

Employee benefits: Pension and gratuity (Refer note 29) 12,145.8 10,178.1 Other incentives and welfare benefits (1) 944.6 13,090.4 846.6 11,024.7 Contingencies (Refer note 28) 6,631.7 4,947.0 19,722.1 15,971.7

(1) Includes compensated absences, restricted stock unit plans/ performance share unit plans, long service awards and ceremonial gifts.

8 - SHORT TERM BORROWINGS

Secured loans(1) From banks - Bank overdraft - 9.0 Unsecured loans From banks - Bank overdraft - 0.4 - 9.4

(1) The Company’s borrowing facilities, comprising fund based and non fund based limits from various bankers, are secured by way of a first pari passu charge on all movable assets (excluding plant and machinery), finished goods (including stock-in-trade), work in progress, raw materials and book debts.

2 Nestle AR 2016-17 070417.indd 47 4/7/2017 4:17:08 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 9 - OTHER CURRENT LIABILITIES

Statutory liabilities (sales taxes, excise duty, tax deducted at source etc.) 1,338.8 1,287.9 Employee costs and reimbursements 1,155.5 995.6 Customers’ credit balances, advances and other payables 1,128.3 1,031.1 Payables for capital expenditure 853.1 433.4 Unpaid dividends (1) 106.8 102.8 Security deposits 75.6 69.9 Book Overdraft 11.5 19.4 Other Liabilities 458.8 719.2 5,128.4 4,659.3

(1) No amount due and outstanding to be credited to Investor Education and Protection Fund.

10 - SHORT TERM PROVISIONS

Employee benefits: Pension (Refer note 29) 171.1 151.9 Other incentives and welfare benefits (1) 238.9 410.0 226.5 378.4 Contingencies (Refer note 28) 128.0 128.0 Final - proposed dividend (` 23.00 per share, Previous year ` 18.50 per share) 2,217.6 1,783.7 Dividend distribution tax on final - proposed dividend 451.4 363.1 3,207.0 2,653.2

(1) Includes compensated absences, restricted stock unit plans/ performance share unit plans, long service awards and ceremonial gifts.

2 Nestle AR 2016-17 070417.indd 48 4/7/2017 4:17:08 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS - - - - (-) (-) (-) (-) 21.1 83.5 (9.6) 235.7 277.7 174.0 (68.8) (216.2) (638.7) (169.0) 1,881.7 8,241.5 1,218.3 NET As at 29,176.3 27,294.6 17,042.8 27,294.6 (2,307.9) (7,866.8) (1,231.0) BLOCK 31, 2016 31, (31,286.4) (28,978.5) (28,978.5) (18,778.4) December ( ` in million) - (-) 31.2 11.7 52.5 68.4 588.3 588.8 103.4 536.3 (11.7) (25.6) (83.1) (52.5) (55.7) (538.7) (588.8) (536.3) 2,371.6 1,630.9 25,305.2 19,910.9 24,716.4 As at (1,326.9) (1,983.5) 31, 2016 31, (22,195.1) (21,606.3) (17,581.1) December ------(-) (-) (-) (-) (-) (-) (-) (-) 9.3 59.6 20.8 (6.9) 544.4 106.9 347.8 544.4 (48.7) (46.5) (379.8) (379.8) (277.7) 219.9 million. Further, for assets whose assets for Further, million. 219.9 ` On deletions / adjustments ------(-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) 45.7 72.6 118.3 118.3 (282.2) (282.2) (282.2) loss Total Total Year - Previous Total Impairment ------(-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (9.0) (296.5) (296.5) (287.5) ‘4’ below) ‘4’ adjustment (Refer note Transitional Transitional - - - - - DEPRECIATION/AMORTISATION (-) (-) (-) (-) 5.6 29.6 12.7 (4.4) (0.2) 109.2 363.2 410.9 (94.5) (17.5) (13.1) (416.3) (347.9) 3,536.2 2,605.0 3,536.2 (3,672.8) (3,672.8) (2,778.9) ‘3’ below) ‘3’ (Refer note For the year - (-) 25.6 83.1 11.7 52.5 55.7 538.7 588.8 536.3 (11.5) (21.2) (72.5) (52.5) (42.6) (492.9) (588.8) (957.1) (536.3) 1,983.5 1,326.9 As at 22,195.1 17,581.1 21,606.3 (1,626.6) 31, 2015 (18,323.4) (17,734.6) (14,510.2) December 52.3 11.7 52.5 824.0 588.8 186.9 536.3 174.0 (11.7) (35.2) (52.5) (754.9) (588.8) (151.9) ` 193.9 million - net of deferred tax) had been adjusted against the General Reserve in accordance with the (536.3) (169.0) 1,908.6 1,286.7 52,599.8 10,613.1 36,953.7 52,011.0 (1,965.6) (9,850.3) (1,286.7) (51,173.6) (50,584.8) (36,359.5) 31, 2016 31, December Cost as at ------(-) (-) (-) (-) (-) (-) (-) (-) 9.6 54.0 25.5 (7.0) 594.9 121.8 384.0 594.9 (49.6) (41.5) (422.5) (422.5) (324.4) ` 296.5 million ( Deletions / adjustments ------(-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) (-) 6.9 41.4 34.5 41.4 differences differences Borrowings 43.6 million) on account of ‘Finance costs’ which have been treated as addition to capital expenditure. ` 43.6 million) on account of ‘Finance costs’ ` 54.0 million) being the cost of leasehold improvements. GROSS BLOCK GROSS cost/ Exchange - - - - - (-) (-) (-) (-) (-) (-) (-) 5.0 17.1 44.6 64.8 123.1 781.4 943.7 (45.2) (49.2) (136.8) (209.3) 1,979.7 1,979.7 (1,506.3) (1,506.3) (1,065.8) Additions 35.2 11.7 52.5 754.9 588.8 151.9 536.3 169.0 (11.7) (35.2) (52.5) (169.0) (113.7) (588.8) (667.7) (536.3) 9,850.3 1,965.6 1,286.7 (1,286.7) 50,584.8 51,173.6 36,359.5 (9,641.0) (1,957.9) 31, 2015 (50,089.8) (49,501.0) (35,618.1) December Cost as at ` 2.2 million (Previous year ` 54.0 million (Previous year the statement of Profit & Loss for the previous year ended 2015 31st under December, the head “Depreciation” is net of cost which had been reclassified under ‘exceptional items’ (Refer note 21). by higher was year previous the for charge depreciation result, a As assets. of class relevant of evaluation technical on based lives useful reassessed on computed reassessed remaining useful life as on 1st January, 2015 was Nil, depreciation of reassessed remaining useful life as on 1st January, transitional provision as specified in Schedule II. [Refer Note 4(b) - Reserves and Surplus]. Gross block of buildings include Capital work-in-progress includes Depreciation reported in 2015, the depreciationCompany hadhad been reviewed and reassessed 1st useful effective January, lives of Accordingly, In fixedthe assetsprevious asyear, perAct, Schedule2013. II to the Companies

Capital Work-in-progress Capital Work-in-progress Sub total (A) Total C = (A+B) - Previous year Total Vehicles Vehicles Total C = (A+B) Total Sub total (B) - Previous Year Year Sub total (B) - Previous Information technology equipment Sub total (B) Office equipment Railway siding Knowhow and commercial rights Buildings Intangible assets (B) Intangible Management information systems Furniture and fixtures Sub total (A) - Previous Year Year Sub total (A) - Previous Leasehold land Plant and machinery

Tangible assets (A) Tangible Freehold land 11 - FIXED ASSETS Previous year’s figures are indicated in brackets. (1) (2) (3) (4)

2 Nestle AR 2016-17 070417.indd 49 4/7/2017 4:17:09 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 Face Value No. of Amount No. of Amount ` per unit units (` in million) units (` in million) 12 - NON-CURRENT INVESTMENTS (At cost unless otherwise stated) (a) Trade Investments - Unquoted Equity Shares - Fully paid-up Sahyadri Agro and Dairy Private Limited 10 1,415,050 518.8 1,415,050 518.8 (b) Other Investments - Quoted Bonds - Tax free India Infrastructure Finance Company Limited 1,000 800,000 825.7 550,000 550.1 India Infrastructure Finance Company Limited 1,000,000 50 50.1 50 50.2 Indian Railway Finance Corporation Limited 1,000,000 710 710.1 710 710.2 Indian Railway Finance Corporation Limited 1,000 342,291 346.6 283,508 288.7 National Bank for Agriculture and Rural Development 1,000 275,050 299.2 - - National Highways Authority of India 1,000,000 500 524.4 - - National Highways Authority of India 1,000 327,092 368.4 - - National Housing Bank 5,000 57,757 288.8 57,757 288.8 NTPC Limited 1,000 474,974 475.0 474,974 475.0 NTPC Limited 1,000,000 300 300.0 300 300.0 Rural Electrification Corporation Limited 1,000 236,000 236.0 236,000 236.0 Less: Provision for diminution in the value of investments (200.0) - (Refer note - 30) 4,743.1 3,417.8 Aggregate amount of unquoted investments at cost 518.8 518.8 Aggregate amount of quoted investments at cost 4,424.3 2,899.0 Aggregate amount of Provision for diminution in the value of 200.0 - investments Market value of quoted investments 4,787.6 3,044.6

13 - LONG-TERM LOANS AND ADVANCES Secured, considered good Loans and advances to employees 4.1 7.0 Unsecured, considered good Loans and advances to employees 296.2 311.7 Payments / pre-deposits under protest with government authorities 699.4 665.2 Security deposits 343.4 308.7 Capital advances 2.4 7.5 Prepaid expenses 4.9 4.2 1,346.3 1,297.3 Unsecured, considered doubtful Other receivables 103.2 103.2 Less: Provision for doubtful receivables (103.2) - (103.2) - 1,350.4 1,304.3

2 Nestle AR 2016-17 070417.indd 50 4/7/2017 4:17:09 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 Face Value No. of Amount No. of Amount ` per unit units (` in million) units (` in million) 14 - CURRENT INVESTMENTS (Non trade, Quoted, at cost or fair value, whichever is lower) Government Securities Treasury Bills 100 40,000,000 3,950.8 32,500,000 3,209.2 Mutual Funds - Debt Birla Sun Life Cash Plus - Daily Dividend - Direct Plan - 100 6,439,556 645.2 4,901,882 491.1 Reinvestment DHFL Pramerica Insta Cash Plus Fund Direct Plan - Annual 100 461,456 45.3 461,456 45.3 Bonus DWS Insta Cash Plus Fund - Direct Plan - Daily Dividend 100 - - 1,863,307 186.9 -Reinvestment HDFC Liquid Fund - Direct Plan - Dividend - Daily 1,000 387,378 395.1 480,684 490.2 Reinvestment ICICI Prudential Liquid Plan - Daily Dividend 100 6,444,710 645.1 4,722,530 472.5 Reliance Liquid Fund - Treasury Plan - Daily Dividend Option 1,000 241,767 369.6 323,062 493.9 SBI Premier Liquid Fund - Direct Plan - Daily Dividend 1,000 612,957 614.9 494,615 496.2 UTI Liquid Cash Plan - Institutional - Direct Plan - Daily 1,000 634,887 647.2 - - Dividend Reinvestment 3,362.4 2,676.1 Certificate of Deposits with scheduled banks 100,000 45,000 4,445.3 27,500 2,712.6 Commercial Paper 500,000 2,000 991.9 2,500 1,233.5 12,750.4 9,831.4 Considered as “Cash and cash equivalents” as per Accounting 12,750.4 9,831.4 Standard (AS - 3) on ‘Cash Flow Statements’ Market value / repurchase price of quoted investments 12,811.3 9,870.9

15 - INVENTORIES (at cost or net realisable value, whichever is lower)

Raw materials 3,743.4 2,747.2 {Includes in transit ` 223.4 million (Previous year ` 246.2 million)} Packing materials 326.0 261.7 {Includes in transit ` 3.5 million (Previous year ` 6.1 million)} Work-in-progress* 917.3 780.3 Finished goods* 3,735.1 3,824.8 Stock-in-trade (goods purchased for resale)* 172.7 117.4 {Includes in transit ` 63.0 million (Previous year ` 35.8 million)} Stores and spares 537.3 476.7 {Includes in transit ` 3.6 million (Previous year ` 6.9 million)} 9,431.8 8,208.1

* Refer note 32

2 Nestle AR 2016-17 070417.indd 51 4/7/2017 4:17:09 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 16 - TRADE RECEIVABLES (UNSECURED) Considered good Over six months from the due date for payment 0.9 19.6 Others 978.4 979.3 764.6 784.2 Considered doubtful Over six months from the due date for payment 1.6 2.1 Others 19.5 21.1 23.0 25.1 1,000.4 809.3 Less: Provision for doubtful trade receivables (21.1) (25.1) 979.3 784.2

17 - CASH AND BANK BALANCES

(a) Cash and cash equivalents* Balances with banks on current accounts 191.9 71.9 on deposit accounts 8,465.0 4,775.8 Cheques, drafts on hand including remittances in transit 36.3 8,693.2 45.0 4,892.7 (b) Other bank balances Unpaid dividend accounts 106.8 102.8 8,800.0 4,995.5

* As per Accounting Standard (AS - 3) on ‘Cash Flow Statements’

18 - SHORT-TERM LOANS AND ADVANCES Secured, considered good Loans and advances to employees 4.3 6.8 Unsecured, considered good Income tax receivable 27.3 327.6 Balances with government authorities 216.6 186.1 Loans and advances to employees 145.9 138.4 Suppliers’ advances, debit balances and other receivables (1) 107.8 152.0 Security deposits 21.1 40.7 Prepaid expenses 43.1 15.8 Others 4.1 21.0 565.9 881.6 Unsecured, considered doubtful Security deposits, vendor balances and other receivables 38.2 35.5 Less: Provision for doubtful receivables (38.2) - (35.5) - 570.2 888.4

(1) Includes ` 26.7 million (Previous year ` 44.2 million) recoverable from related parties.

2 Nestle AR 2016-17 070417.indd 52 4/7/2017 4:17:10 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 19 - OTHER CURRENT ASSETS

Interest accrued on bank deposits/ tax free long term bonds 258.2 147.2 258.2 147.2

20 - REVENUE FROM OPERATIONS

(a) Sale of products (Refer Note - 32) Domestic 88,338.0 77,949.1 Export 6,579.2 6,355.3 94,917.2 84,304.4 Less: Excise duty 3,324.4 91,592.8 3,071.7 81,232.7 (b) Other operating revenues Export incentives 465.2 376.4 Other operating income (mainly scrap sales) 180.0 645.2 144.0 520.4 92,238.0 81,753.1

21. Expenses reported under regular heads in the statement of profit and loss for the previous year ended 31st December, 2015 are net of costs incurred in relation to MAGGI Noodles issue which had been reclassified under ‘exceptional items’ (Refer Note - 30).

22 - COST OF MATERIALS CONSUMED (Refer Note - 21) Raw materials (Refer Note - 33) 31,118.8 28,105.3 Packing materials 6,632.1 5,483.4 37,750.9 33,588.7

23 - CHANGES IN INVENTORIES OF FINISHED GOODS, WORK-IN-PROGRESS AND STOCK-IN-TRADE

Opening stock Finished goods 3,824.8 3,815.5 Work-in-progress 780.3 901.9 Stock-in-trade 117.4 95.5 4,722.5 4,812.9 Closing Stock Finished goods 3,735.1 3,824.8 Work-in-progress 917.3 780.3 Stock-in-trade 172.7 117.4 4,825.1 4,722.5 Net (increase)/ decrease in opening and closing stock (102.6) 90.4 Net movement in excise duty on finished goods (5.2) 29.3 (107.8) 119.7

2 Nestle AR 2016-17 070417.indd 53 4/7/2017 4:17:10 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 24 - EMPLOYEE BENEFITS EXPENSE (Refer Note - 21) Salaries, wages, bonus, pension, performance incentives etc. (Refer note - 29) 8,951.7 7,596.5 Contribution to provident and other funds 438.3 377.8 Staff welfare expenses 469.6 400.0 9,859.6 8,374.3

25 - OTHER EXPENSES (Refer Note - 21) Advertising and sales promotion 5,670.2 5,252.1 Finished goods handling, transport and distribution 4,555.6 3,869.9 General licence fees (net of taxes) 3,617.9 3,038.0 Power and fuel 2,327.9 2,219.9 Maintenance and repairs Plant and machinery 825.2 659.5 Buildings 69.7 88.1 Others 150.9 1,045.8 148.3 895.9 Information technology and management information systems 955.3 777.4 Rates and taxes 776.3 651.1 Travelling 773.6 744.0 Rent 585.0 594.1 Consumption of stores and spare parts 895.0 829.0 Less: Charged to other revenue accounts 442.4 452.6 416.3 412.7 Training 398.3 388.0 Contract manufacturing charges 378.0 397.5 Withholding tax on general licence fees 361.8 303.7 Market research 235.6 198.8 Laboratory (quality testing) 211.4 161.2 Milk collection and district development 166.7 160.4 Security charges 143.9 112.4 Insurance 47.2 49.2 Deficit/ (Surplus) on fixed assets sold/scrapped/written off (net) 13.7 66.0 Exchange difference (net) 8.9 20.3 Miscellaneous 1,064.6 951.7 23,790.3 21,264.3

2 Nestle AR 2016-17 070417.indd 54 4/7/2017 4:17:10 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 26 - OTHER INCOME

Dividend on mutual funds, current - non trade investments 129.4 119.8 Interest on bank deposits, investments and employee loans, etc. 1,078.7 757.2 Interest on tax free long term bonds 278.0 223.9 Interest on income tax refund relating to earlier years 7.8 - 1,493.9 1,100.9

27 - FINANCE COSTS

Interest on Bank Overdraft and Others 35.1 32.9 35.1 32.9

2 Nestle AR 2016-17 070417.indd 55 4/7/2017 4:17:10 PM NESTLÉ INDIA LIMITED

NOTES FORMING PART OF THE FINANCIAL STATEMENTS 28. NET PROVISION FOR CONTINGENCIES The Company has created a contingency provision of ` 1,813.6 million (Previous year ` 794.6 million) for various contingencies resulting mainly from matters, which are under litigation / related disputes and other uncertainties requiring management judgement. The current year’s provision has been impacted due to completion of certain procedures relating to litigation / disputed matter for more number of years in the current year as compared to only one year in the previous year. The Company has also reversed, utilised/settled contingency provision of ` 128.9 million (Previous year ` 160.0 million) due to the satisfactory settlement of certain litigations and settlement of obligations under free replacement warranty for which provision is no longer required. The details of class-wise provisions are given below: 2016 2015 (` in million) (` in million) Description Provisions for contingencies Provisions for contingencies Litigations and Litigations and Others Total Others Total related disputes related disputes Opening balance 4,947.0 128.0 5,075.0 4,315.4 125.0 4,440.4 New provisions 1,574.9 238.7 1,813.6 666.6 128.0 794.6 Utilisation/Settlement during the year - (128.0) (128.0) - (125.0) (125.0) Reversals (0.9) - (0.9) (35.0) - (35.0) Recognised in statement of profit 1,574.0 110.7 1,684.7 and loss* 631.6 3.0 634.6 Closing balance 6,521.0 238.7 6,759.7 4,947.0 128.0 5,075.0 *out of this, ` 418.0 million (Previous year ` 333.1 million) has been recognised as contingencies from operations and balance amount of ` 1,266.7 million (Previous year ` 301.5 million) as others. Notes: (a) Litigations and related disputes - represents estimates made mainly for probable claims arising out of litigations / disputes pending with authorities under various statutes (i.e. Income Tax, Excise Duty, Service Tax, Entry tax, Value Added Tax, Sales and Purchase Tax, etc.). The probability and the timing of the outflow with regard to these matters depend on the ultimate settlement /conclusion with the relevant authorities. (b) Others - include estimates made for products sold by the Company which are covered under free replacement warranty on crossing the best before date for consumption and other uncertainities requiring management judgement. The timing and probability of outflow with regard to these matters will depend on the external environment and the consequent decision/ conclusion by the Management.

29. EMPLOYEE BENEFIT PLANS (a) Defined contribution plans The Company makes contributions to the Provident Fund, Employee State Insurance, National Pension System etc. for eligible employees. Under these plans, the Company is required to contribute a specified percentage of payroll costs. The Company during the year has recognised ` 324.1 million (Previous year ` 292.8 million) as expense in the statement of profit and loss during the year. Out of the total contribution made for Provident Fund, ` 128.9 million (Previous year ` 118.6 million) is made to the Nestlé India Limited Employees Provident Fund Trust. The members of the Provident Fund Trust are entitled to the rate of interest declared by the Central Government under the Employees Provident Funds and Miscellaneous Provisions Act, 1952. The shortfall, if any, is made good by the Company in the year in which it arises. The total plan liabilities under the Nestlé India Limited Employees Provident Fund Trust as at December 31, 2016 as per the unaudited financial statements for the year then ended is` 2,969.7 million (Previous year ` 2,668.7 million) as against total plan assets of ` 2,982.8 million (Previous year ` 2,689.8 million). The funds of the Trust have been invested under various securities as prescribed under the rules of the Trust. (b) Defined benefit plans The company provides gratuity and defined benefit pension to eligible employees. The gratuity plan provides for a lump sum payment to vested employees at retirement, death while in employment or on termination of employment. Gratuity vesting occurs upon completion of five years of service. The Company makes contributions to the Nestlé India Limited Employees’ Gratuity Trust Fund. Defined benefit pension is a discretionary, unfunded plan.

2 Nestle AR 2016-17 070417.indd 56 4/7/2017 4:17:10 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS The following table sets out the status of the defined benefit plans as at December 31, 2016:- 2016 2015 (` in million) (` in million) Gratuity Pension Gratuity Pension Scheme Scheme Scheme Scheme Funded Unfunded Funded Unfunded Plan Plan Plan Plan Change in defined benefit obligation (DBO): 1 Present Value of obligation, as at the beginning of the year 942.4 10,295.3 850.1 8,836.8 2 Current service cost 64.2 513.4 57.6 388.4 3 Interest cost 72.9 813.6 65.8 699.6 4 Actuarial loss (net) 50.2 793.9 22.8 555.1 5 Actual benefits paid (62.6) (251.0) (53.9) (184.6) 6 Present Value of obligation, as at the end of the year 1,067.1 12,165.2 942.4 10,295.3 Change in plan assets: 1 Plan assets at the beginning of the year 907.7 - 772.1 - 2 Expected return on plan assets 70.1 - 64.8 - 3 Contribution by the Company - - 130.0 - 4 Actuarial gain/ (loss) 0.2 - (5.3) - 5 Actual benefits paid (62.6) - (53.9) - 6 Plan assets at the end of the year 915.4 - 907.7 - Liability (net) recognised in the balance Sheet 151.7 12,165.2 34.7 10,295.3 of which accounted as: (a) Long-term provisions 151.7 11,994.1 34.7 10,143.4 (b) Short-term provisions - 171.1 - 151.9 Cost for the year 1 Current service cost (net of recoveries) 64.2 506.2 56.9 378.8 2 Interest cost (net of recoveries) - Refer note below 72.9 811.3 65.8 698.5 3 Expected return on plan assets - Refer note below (70.1) - (64.8) - 4 Actuarial loss (net) 50.0 793.9 28.1 555.1 Net cost 117.0 2,111.4 86.0 1,632.4 Constitution of plan assets: 1 Bonds 368.4 - 388.4 - 2 Government of India securities 77.2 - 80.1 - 3 State Government/State Government guaranteed securities 366.0 - 341.3 - 4 Cash at bank and receivables 3.4 - 2.0 - 5 Funding with insurance Companies and mutual funds 100.4 - 95.9 - Total plan assets 915.4 - 907.7 - Actual return on plan assets 70.3 - 59.5 - Main Actuarial Assumptions: 1 Discount Rate (%) 7.0 7.0 8.0 8.0 2 Expected rate of return on plan assets (%) 7.0 - 8.0 - Experience Adjustments: Experience Loss/ (Gain) adjustments on plan liabilities 23.1 265.2 20.4 155.7 Experience Gain / (Loss) adjustments on plan assets 0.2 - (5.3) -

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS Total employee benefits expense due to passage of time charged in statement of profit and loss is` 874.0 million (Previous year ` 753.2 million). This includes ` 814.1 million (Previous year ` 699.5 million) towards pension and gratuity and ` 59.9 million (Previous year ` 53.7 million) towards compensated absences and long service awards. The estimates of future salary increases considered in actuarial valuation, take account of inflation, performance, promotion and other relevant factors such as demand and supply in the employment market. The expected return on plan assets is determined considering several applicable factors mainly the composition of the plan assets held, assessed risks of assets management, historical results of return on plan assets and the policy for plan assets management. Defined benefit obligation (DBO), Plan assets, Deficit/(Surplus) and Experience adjustments for previous years

2014 2013 2012 (` in million) (` in million) (` in million) Gratuity Pension Gratuity Pension Gratuity Pension Scheme Scheme Scheme Scheme Scheme Scheme Funded Unfunded Funded Unfunded Funded Unfunded Plan Plan Plan Plan Plan Plan Present value of defined benefit obligation (DBO) 850.1 8,836.8 739.7 7,538.5 650.2 6,491.7 Value of plan assets 772.1 - 659.0 - 586.9 - Deficit / (Surplus) 78.0 8,836.8 80.7 7,538.5 63.3 6,491.7 Experience Loss/ (Gain) adjustment on plan liabilities 14.8 235.8 17.2 201.2 30.1 298.6 Experience Gain / (Loss) adjustment on plan assets (0.9) - 3.2 - 2.1 -

2016 2015 (` in million) (` in million) 30. EXCEPTIONAL ITEMS (a) MAGGI Noodles issue related cost(1) - 5,008.4 (b) Write backs, arising, inter alia, from actualization of estimates of part of the (212.2) - provision made for MAGGI Noodles issue in the previous year (c) Provision for diminution in the value of non-current investment 200.0 - (d) Cost towards the restructuring of a long term arrangement for supply of 320.0 - ingredients to extinguish the obligations under the arrangement in view of changed business circumstances 307.8 5,008.4

(1) Financial results for the previous year ended 31st December, 2015 had been impacted by the MAGGI Noodles issue. The trust of its consumers and the safety and quality of its products is Nestlé’s foremost priority. Unfortunately, developments and growing concerns about the product had led to an environment of confusion for the consumers to such an extent that the Company, on 5th June, 2015, decided to take the products temporarily off the shelves, despite the product being safe. This was done to reassure the consumers that their trust has always been of utmost importance for the Company and to maintain their continued patronage for Company’s products. The Food Safety and Standards Authority of India (FSSAI) issued a ban order later on the same day i.e. 5th June, 2015 mainly alleging higher than permissible limits of lead and asking the Company to recall MAGGI Noodles, stop further manufacture and comply with other directions. In line with the instructions from the authorities and in keeping with environmental considerations, the withdrawn products including stocks with the Company were sent for high temperature thermal destruction and the Company suspended further manufacturing of MAGGI Noodles. The Company had conducted extensive additional tests, of over 3500 samples representing over 200 million packs of MAGGI Noodles, in both national and international accredited laboratories. All results confirmed levels of lead were well below the permissible limits. Furthermore, several other countries had found MAGGI Noodles safe after testing samples of the product exported from India. With a view to resolving the issue, the Company approached the Hon’ble Bombay High Court raising issues of interpretation of the Food Safety and Standards Act 2011, whilst seeking judicial review of the order dated 5th June, 2015 passed by FSSAI and order dated 6th June, 2015 passed by the Commissioner of Food Safety, Maharashtra (FDA). The Hon’ble Bombay High Court vide its Judgment dated 13th August, 2015 read along with Order dated 4th September, 2015 revoked the ban order passed by FSSAI and FDA and directed fresh testing of MAGGI Noodles for lead

2 Nestle AR 2016-17 070417.indd 58 4/7/2017 4:17:11 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS at three NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited laboratories notified by FSSAI for testing of food products under Food Safety and Standards Act. Results from these laboratories were received by 16th October, 2015. 100% of the samples tested were clear with lead much below the permissible limits. In compliance with the directions of the Hon’ble Bombay High Court, the Company thereafter started manufacture of MAGGI Masala Noodles. Samples from the fresh manufacture of MAGGI Masala Noodles were sent to the same three laboratories to test for lead. Results from these laboratories were received by 4th November, 2015. 100% of the samples tested were clear with lead much below the permissible limits. The Company, after successfully passing the two levels of testing directed by the Hon’ble Bombay High Court, re-launched MAGGI Masala Noodles on 9th November, 2015. In December, 2015 the FSSAI filed a Special Leave Petition in the Hon’ble Supreme Court, challenging the Judgment of the Hon’ble Bombay High Court, which is currently pending before the Hon’ble Supreme Court. Net Sales worth ` 3,034.0 million (about 23,650 tons) had been reversed during the previous year ended 31st December, 2015 in relation to MAGGI Noodles stock withdrawn from trade partners and market. The exceptional item relates to loss on account of stocks withdrawn including incidental costs thereto and estimates of other related costs incurred exclusively in the ordinary course of Company’s business, dealt in line with the Accounting Standard AS 2 on “Valuation of Inventories” and Accounting Standard AS 5 on “Net Profit or Loss for the Period, Prior Period Items and Changes inAccounting Policies”. The exceptional item comprises of cost of finished goods, obsolete raw and packaging material, contractual commitments, destruction expenses and other related costs, including administrative costs, which had been incurred /reclassified from the expenses reported under the regular heads in the Statement of Profit and Loss (Refer note – 21). 2016 2015 (` in million) (` in million) 31. CORPORATE SOCIAL RESPONSIBILITY (CSR) EXPENSE Prescribed CSR expenditure as per Section 135 of the Companies Act, 2013 283.3 332.9 Details of CSR spent during the financial year (a) Total amount planned to be spent during the year (1) 312.2 235.0 (b) Actual spent during the year (2) 313.6 206.1 (c) Amount unspent (a-b) - 28.9 (to be spent in subsequent year) (1) Unspent CSR expenditure of the previous year included in the current year 28.9 68.4 (2) Amount paid for - acquisition/ construction of assets Nil Nil - other purposes 296.7 193.1

32. (a) CLASS-WISE DETAILS OF PRODUCTION/PURCHASES, STOCKS AND SALES OF PRODUCTS Product Groups Opening Stock Actual Closing Stock Gross sales Quantity Amount production(1) Quantity Amount Quantity(2) Amount (MT) (` in and purchases (MT) (` in (MT) (` in million) Quantity (MT) million) million) Milk Products and Nutrition 10,806 2,242.8 130,450 9,818 2,037.6 129,963 47,136.6 (10,705) (2,282.5) (133,547) (10,806) (2,242.8) (131,980) (46,694.0) Prepared dishes and cooking aids 8,096 571.1 180,827 9,663 817.9 178,467 22,988.9 (9,159) (687.1) (103,510)(3) (8,096) (571.1) (103,138) (13,141.4) Beverages 1,497 533.2 22,495 1,388 463.4 22,411 12,949.2 (1,238) (398.8) (22,620) (1,497) (533.2) (22,130) (13,360.4) Chocolate and confectionery 2,907 595.1 36,006 2,951 588.9 35,615 11,842.5 (2,653) (542.6) (33,878) (2,907) (595.1) (33,083) (11,108.6) 23,306 3,942.2 369,778 23,820 3,907.8 366,456 94,917.2 (23,755) (3,911.0) (293,555) (23,306) (3,942.2) (290,331) (84,304.4)

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS Previous year’s figures are indicated in brackets. 1. Includes product manufactured by contract manufacturers on conversion basis. 2. Sales quantity include company products withdrawn for sales promotion but exclude company products which have crossed the best before date for consumption and/or damaged in transit/ market which are destroyed. 3. Excludes stock of MAGGI Noodles destroyed (about 34,650 tons) - [Refer Note - 30]. (b) CLASS-WISE DETAILS OF PURCHASES OF STOCK-IN-TRADE AND STOCK OF WORK IN PROGRESS Product Groups Purchases of stock in trade Work in progress Quantity Amount Amount (MT) (` in million) (` in million) Milk Products and Nutrition 14,718 934.5 421.2 (15,811) (855.3) (309.1)

Prepared dishes and cooking aids 9 1.2 259.8 (26) (5.7) (240.9)

Beverages 1,189 152.2 157.9 (117) (67.7) (191.9)

Chocolate and confectionery 302 65.9 78.4 (287) (52.0) (38.4) 16,218 1,153.8 917.3 (16,241) (980.7) (780.3) Previous year’s figures are indicated in brackets.

2016 2015 (` in million) (` in million) 33. RAW MATERIALS CONSUMED (Refer Note - 21) Fresh milk 8,847.5 9,308.7 Milk derivatives 5,878.0 5,618.4 Grain flour 3,484.6 1,914.3 Green coffee and chicory 3,239.2 3,717.5 Edible oils 2,859.4 1,996.7 Sugar 1,753.3 1,387.0 Fruit and vegetable crunchies / flakes 471.4 542.5 Tomato paste /powder 394.0 421.6 Maltodextrine powder 353.4 437.1 Fruits and vegetables concentrate 257.4 257.0 Onion flakes /powder 242.1 165.0 Cocoa based raw materials 214.6 201.8 Wheat gluten 140.2 56.9 Liquid glucose 130.6 132.9 Black tea/green leaf 87.2 90.7 Others (net of sale proceeds of by-products/surplus materials) 2,765.9 1,857.2 31,118.8 28,105.3

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2016 2015 (` in million) % (` in million) % Of the above: Imported 3,609.8 11.6 3,798.8 13.5 Indigenous 27,509.0 88.4 24,306.5 86.5 31,118.8 100.0 28,105.3 100.0

34. RESTRICTED STOCK UNIT (RSU)/ PERFORMANCE SHARE UNIT (PSU) PLAN

The Company participates in the Nestlé Restricted Stock Unit (RSU)/ Performance Share Unit (PSU) Plan of Nestlé S.A., whereby select employees are granted non-tradable units with the right to obtain Nestlé S.A. shares or cash equivalent. Restricted Stock Units (RSU)/ Performance Share Units (PSU) granted to employees vest, subject to certain conditions, after completion of three years. Upon vesting Nestlé S.A. determines, whether shares, free of charge or cash equivalent to the value of shares, is to be transferred to the employee. The Company has to pay Nestlé S.A an amount equivalent to the value of Nestlé S.A. shares on the date of vesting, delivered to the employee. The details are as under:- 2016 2015 (` in million) (` in million) Outstanding, non-vested RSU/ PSU grants as at year end 280.0 303.4 RSU/ PSU grants vested during the year 163.2 178.2 Recognised in statement of profit and loss 139.8 171.2

35. The Company had reviewed the General License Agreement in 2013, the Board of Directors of the Company negotiated and Nestlé S.A. accepted an increase in royalty from 3.5% to 4.5% of domestic sales in a staggered manner by making an increase of 0.20% per annum over five years effective January 1, 2014. The royalty rate on exports is aligned to 4.5% of sales. 36. OPERATING LEASES

The Company’s significant leasing arrangements are primarily in respect of operating leases for premises (office, residential, warehouses etc.) and vehicles. The aggregate lease rentals charged to the statement of profit and loss account under different revenue accounts are ` 709.7 million (Previous year ` 720.9 million). Future minimum lease rentals payable as at 31st December, 2016 as per the lease agreements:

2016 2015 (` in million) (` in million) Not later than one year 565.8 617.6 Later than one year and not later than five years 1,215.6 1,164.9 Later than five years 347.6 466.8

2016 2015 (` in million) % (` in million) % 37. CONSUMPTION OF STORES AND SPARE PARTS (Refer Note - 21) Imported 104.4 11.7 115.8 14.0 Indigenous 790.6 88.3 713.2 86.0 895.0 100.0 829.0 100.0

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS

2016 2015 (` in million) (` in million) 38. AUDITORS REMUNERATION {included under Miscellaneous (Refer Note - 25)} (1) Auditors’ remuneration including service tax and expenses in respect of: (a) Statutory audit 9.4 7.6 (b) Audit of accounts for fiscal year and tax audit 3.7 3.5 (c) Limited review of quarterly un-audited results 1.6 1.7 (d) Certifications 0.8 0.6 (e) Certification of tax holiday benefits 0.6 0.3 (f) Audit of employee trust accounts 0.1 0.2 (g) Out of pocket expenses for statutory audit and other matters 0.5 0.3 16.7 14.2 (2) Cost auditors’ remuneration including service tax and expenses in respect of: (a) Cost audit fees 0.2 0.2 (b) Certifications - 0.3 39. CONTINGENT LIABILITIES AND COMMITMENTS Contingent liabilities Claims against the Company not acknowledged as debts: Indirect Taxes 11.7 11.7 Capital Commitments Capital expenditure commitments remaining to be executed and not provided for [net of advances ` 2.4 million (Previous year ` 7.5 million)] 542.7 828.2 Corporate social responsibility expense commitments 260.0 279.3 The Company also has other commitments for purchase /sales of goods and services for which orders are issued after considering requirements as per the operating cycle of the business. 40. RELATED PARTY DISCLOSURES UNDER ACCOUNTING STANDARD 18 (a) Related party and their relationship (i) Holding Companies Nestlé S.A Maggi Enterprises Limited (ii) Fellow subsidiaries with whom the company had transactions Nestec S.A. Nestlé Purina Petcare Company Nestec York Ltd Nestlé R&D Center (Pte) Ltd Nestlé (China) Ltd. Nestlé R&D Center, Inc. Nestlé (PNG) Ltd Nestlé R&D Centre India Private Ltd Nestlé (South Africa) (Pty) Ltd Nestlé ROH (Thailand) Ltd. Nestlé (Thai) Ltd. Nestlé Romania SRL Nestlé Adriatic S DOO Nestlé Servicios Corporativos, S.A. de C.V Nestlé Asean (Malaysia) Sdn Bhd Nestlé Shanghai Ltd. Nestlé Australia Ltd Nestlé Shuangcheng Ltd Nestlé Bangladesh Ltd Nestlé Singapore (Pte) Ltd

2 Nestle AR 2016-17 070417.indd 62 4/7/2017 4:17:11 PM NOTES FORMING PART OF THE FINANCIAL STATEMENTS Nestlé Brasil Ltda Nestlé Suisse S.A. Nestlé Bulgaria A.D Nestlé Taiwan Ltd Nestlé Canada Inc Nestlé Tianjin Ltd. Nestlé Central And West Africa Nestlé Turkiye Gida Sanayi A.S. Nestlé Chile S.A. Nestlé UK Ltd Nestlé Cote D’Ivoire Nestlé USA Inc Nestlé Deutschland AG Nestlé Vietnam Ltd Nestlé Dubai Manufacturing LLC Nestlé Waters (Suisse) SA Nestlé Egypt S.A.E. Nestlé Waters Management & Technology S.A.S Nestlé Equatorial African Region Nestlé Waters Marketing & distribution S.A.S Nestlé Espana, S.A. Nestlé Waters North America Inc Nestle Food Kazakhstan LLP Nestlé Zimbabwe (Private) Ltd Nestlé France S.A.S Nestrade S.A. Nestlé Ghana Ltd Osem Investments Ltd. Nestlé Hong Kong Ltd PJSC “Lviv Confectionery Factory svitoch” Nestlé Hungaria Kft. PT Nestlé Indonesia Nestlé International Travel Retail Quality Coffee Products Ltd. Nestlé Iran Sanpellegrino S.p.A. Nestlé Japan Ltd. Servcom S.A. Nestlé Korea Ltd SMA Nutrition India Private Ltd Nestlé Lanka PLC Société des Produits Nestlé S.A Nestlé Manufacturing (Malaysia) Sdn Bhd Wyeth Nutritionals Ireland Ltd Nestlé Mexico S.A. de C.V. Nestlé Middle East FZE Nestlé Middle East Manufacturing Nestlé Nederland B.V. Nestlé Nigeria Plc Nestlé Operational Services Worldwide S.A Nestlé Pakistan Ltd. Nestlé Panama S.A. Nestlé Philippines, Inc. Nestlé Products (Mauritius) Ltd Nestle Polska S.A. Nestlé Product Technology Centre Nestlé Products Sdn Bhd (iii) Key Management Personnel Suresh Narayanan, Chairman and Managing Director Aristides Protonotarios, Director - Technical (Managing Director w.e.f. 01st August, 2015) Shobinder Duggal, Director - Finance & Control and CFO (Chairman and Managing Director w.e.f. 29th October, 2015) Etienne Benet - Managing Director (Managing Director upto 25th July, 2015) (iv) Employees benefit trusts where control exists Nestlé India Limited Employees Provident Fund Trust Nestlé India Limited Employees’ Gratuity Trust Fund

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS (b) Nature of transactions

The transactions with the related parties have been entered in the ordinary course of business and are at arm’s length.

Particulars 2016 2015 (` in million) (` in million) Holding companies : Dividends: Interim 2,420.6 1,815.4 Final – proposed 1,391.8 1,119.5

Expenses incurred - Nestlé S.A. 139.8 171.2

Fellow subsidiaries: (a) Sale of finished and other goods - Nestlé Turkiye Gida Sanayi A.S. 1,749.8 1,933.0 - Nestlé Bangladesh Ltd 1,709.5 1,592.5 - Others 1,099.1 817.3 (b) Sale of surplus materials and fixed assets - Nestlé R&D Centre India Private Limited 0.9 0.9 - Nestlé Philippines, Inc - 2.4 - Nestlé Lanka Plc - 0.6 (c) Purchase of fixed assets - Nestrade S.A 287.1 - - Nestlé R&D Centre India Private Limited 1.0 - (d) Purchase of raw and packing materials - Nestrade S.A 12.7 - - Nestlé Nederland BV 40.0 31.0 - Nestlé Suisse S.A. 28.5 38.8 - Others 3.5 6.0 (e) Purchase of finished goods - Nestlé Lanka PLC 180.0 153.5 - Nestlé Nederland BV 94.1 84.5 - Nestlé Korea Limited 55.8 45.3 - Others 124.9 113.7 (f) General licence fees (net of taxes) - Société des Produits Nestlé S.A. 3,617.9 3,038.0 (g) Expenses recovered - Nestlé Lanka PLC 54.3 46.4 - Nestlé R&D Centre India Private Ltd 31.3 36.1 - Nestlé Bangladesh Ltd. 30.6 23.2 - Others 44.1 61.0

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Particulars 2016 2015 (` in million) (` in million) (h) Expenses incurred - Nestlé R & D Center (Pte) Limited 38.9 36.8 - Nestlé Deutschland AG 27.3 16.4 - Nestec S.A 25.2 20.5 - Nestlé Australia Ltd. 23.6 20.6 - Others 65.1 51.6 (i) Information technology and management information systems - Nestlé Australia Ltd 646.1 542.3 - Servcom S.A. 6.6 3.2 (j) Loans granted - Nestlé R&D Centre India Private Limited 400.0 400.0 - SMA Nutrition India Private Limited 35.0 20.0 (k) Repayment of loans granted - Nestlé R&D Centre India Private Limited 400.0 400.0 - SMA Nutrition India Private Limited 35.0 20.0 (l) Interest on loans granted - Nestlé R&D Centre India Private Limited 29.5 34.3 - SMA Nutrition India Private Limited 2.4 0.7

Remuneration to Key management personnel - Managing Director (From 01st August, 2015) & 90.2 32.4 Chairman & Managing Director (From 29th October, 2015) - Managing Director (Upto 25th July, 2015) - 62.0 - Director – Finance & Control and CFO 39.0 35.3 - Director – Technical 63.4 54.7

Contribution to Employee related trusts - Nestlé India Limited Employees Provident Fund Trust 128.9 118.6 - Nestlé India Limited Employees’ Gratuity Trust Fund - 130.0

Balance outstanding as at the year end Final - proposed dividend payable to holding companies 1,391.8 1,119.5 Receivables from fellow subsidiaries 671.9 578.9 Payables to fellow subsidiaries 791.8 479.2 Payables to Key management personnel 31.8 20.5 Payables to Employees Provident Fund Trust 11.1 10.2 Note: Other transactions with Key Managerial Personnel: - Remuneration includes lease rentals paid at market rates ` 3.3 million (previous year ` 3.0 million).

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS 41. SEGMENT REPORTING

Based on the guiding principles given in Accounting Standard on ‘Segment Reporting’ (AS-17), the Company’s primary business segment is Food. The food business incorporates product groups viz. Milk Products and Nutrition, Beverages, Prepared dishes and cooking aids, Chocolates and Confectionery, which mainly have similar risks and returns. As the Company’s business activity falls within a single primary business segment the disclosure requirements of AS -17 in this regard are not applicable.

42. DISCLOSURE UNDER THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

On the basis of confirmation obtained from suppliers who have registered themselves under the Micro Small Medium Enterprise Development Act, 2006 (MSMED Act, 2006) and based on the information available with the Company, the following are the details:

2016 2015 (` in million) (` in million) (i) Principal amount remaining unpaid 48.8 37.5 (ii) Interest due thereon remaining unpaid - - (iii) Interest paid by the Company in terms of Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006, along-with the amount of the payment made to the supplier beyond the appointed day during the period - - (iv) Interest due and payable for the period of delay in making payment (which have been paid but beyond the appointed day during the period) but without adding interest specified under the Micro, Small and Medium EnterprisesAct, 2006 - - (v) Interest accrued and remaining unpaid - - (vi) Interest remaining due and payable even in the succeeding years, until such date when the interest dues as above are actually paid to the small enterprises - -

43. EARNINGS FROM EXPORT OF GOODS

- Foreign currency at F.O.B. value 4,773.2 4,827.8 {including sales invoiced in Rupees of ` 2.7 million (Previous year ` 179.4 million)} - Rupees sales to Nepal and Bhutan 1,784.0 1,506.6

44. C. I. F. VALUE OF IMPORTS

Raw and packing materials 2,919.1 3,010.3 Capital goods 771.6 148.5 Goods – outside manufacture 462.1 403.8 Components and spare parts 145.8 127.6

45. (a) EXPENDITURE IN FOREIGN CURRENCY

General license fees (net of taxes) 3,617.9 3,038.0 Information technology and management information systems 661.6 570.2 Project management costs for capital projects 25.7 23.1 Other matters 464.3 391.5

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2016 2015 (` in million) (` in million) (b) OTHER RECOVERIES IN FOREIGN CURRENCY Reimbursement of costs 120.7 117.6 Proceeds from sale of surplus materials - 0.6

46. AMOUNT REMITTED IN FOREIGN CURRENCIES TOWARDS DIVIDENDS DURING THE YEAR

2016 2015 Number of Number of Dividend Number of Number of Dividend Non-resident Equity remitted Non-resident Equity remitted Shareholders Shares held (` in million) Shareholders Shares held (` in million) Final - 2015/2014 2 60,515,079 1,119.5 2 60,515,079 756.4 Interim: First – 2016/ 2015 2 60,515,079 726.2 2 60,515,079 847.2 Second – 2016/ 2015 2 60,515,079 726.2 2 60,515,079 968.2 Third – 2016 2 60,515,079 968.2 - - -

47. FOREIGN CURRENCY EXPOSURE

The foreign currency exposure of the Company as at December 31, 2016 is as under: (a) Category wise quantitative data*

2016 2015 Currency Nos. Amount (` in Nos. Amount in (` in in Foreign million) Foreign million) currency currency (in million) (in million) Forward contracts against exports USD 65 27.3 1,854.9 44 25.0 1,656.6

Forward contracts against imports USD 24 10.5 712.3 20 10.2 675.8 (Including Capital imports) EUR 18 7.4 525.4 11 4.8 350.1 CHF 11 4.6 308.3 - - - AUD 10 5.0 245.4 5 2.8 135.4 GBP 2 0.1 10.0 - - - CAD - - - 1 0.0 0.8 (b) All the forward contracts are for hedging foreign exchange exposures relating to the underlying transactions and firm commitments or highly probable forecast transactions.

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NOTES FORMING PART OF THE FINANCIAL STATEMENTS (c) Foreign currency exposures remaining unhedged at the year-end*

2016 2015 Currency Amount (` in million) Amount in (` in million) in Foreign Foreign currency currency (in million) (in million) Against exports GBP 0.1 7.2 0.1 13.5 CAD 0.1 3.8 0.1 2.8 EUR 0.0 0.7 0.2 15.9 CHF 0.0 0.1 0.0 0.3

Against imports SGD 0.5 22.9 0.1 5.9 (Including Capital imports) GBP 0.0 2.3 0.1 5.7 ZAR 0.3 1.6 - - JPY 2.2 1.3 12.3 6.7 AED 0.0 0.1 - - NZD 0.0 0.0 0.1 2.8 CHF - - 0.5 34.8 * At closing exchange rates

2 Nestle AR 2016-17 070417.indd 68 4/7/2017 4:17:12 PM ANNEXURE - 1 TO THE BOARD’S REPORT Report on Corporate Governance for the year ended December 31, 2016 NESTLÉ’S PHILOSOPHY ON CODE OF GOVERNANCE

Nestlé India Limited (“the Company”), as a part of Nestlé Group, Switzerland has over the years followed best practices of Corporate Governance by adhering to practices of the Nestlé Group. The significant documents from Nestlé Group, which define the standard of behaviour of the Company, are “The Nestlé Corporate Business Principles”, “The Nestlé Management and Leadership Principles” and “The Nestlé India Code of Business Conduct”. The Company’s business objective and that of its management and employees is to manufacture and market the Company’s products in such a way as to create value that can be sustained over the long term for consumers, shareholders, employees, business partners and the national economy. The Company is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and ethical values of its management and employees. In addition to compliance with regulatory requirements, the Company endeavours to ensure that highest standards of ethical and responsible conduct are met throughout the organisation. BOARD OF DIRECTORS Composition and Category of Directors, attendance of the Directors at the Board Meetings and the last Annual General Meeting, Outside Directorships and other Membership or Chairmanship of Board Committees

Above information as on 31st December, 2016 or for the year 2016, as applicable, is tabulated hereunder: Director DIN Category of Director No. of Attendance at No. of No. of Membership/ Board the last AGM outside Chairmanship Meetings on 12th May, Directorship in other Board attended 2016 held A Committees B Mr. Suresh Narayanan 07246738 Executive 5 Yes Nil Nil Mr. Shobinder Duggal 00039580 Executive 5 Yes Nil Nil Mr. Aristides Protonotarios 06546858 Executive 4 Yes Nil Nil Dr. Rakesh Mohan1,2 02790744 Independent Non-Executive 3 Yes Nil Nil Mr. Ashok Kumar Mahindra 00916746 Independent Non-Executive 4 Yes 1 Nil Mr. Ravinder Narain 00059197 Independent Non-Executive 5 Yes 3 2 Mr. Rajya Vardhan Kanoria 00003792 Independent Non-Executive 5 Yes 7 5 Dr. Swati A. Piramal 2 00067125 Independent Non-Executive 3 Yes 9 Nil 1 Appointed as Independent Non-Executive Director with effect from 1st May, 2016. 2 In addition to Meetings attended, the Directors who participated in the meeting over phone are: Dr. Rakesh Mohan and Dr. Swati A. Piramal on 5th December, 2016. A Directorship in companies registered under the Companies Act, 2013 or any earlier enactments, excluding companies under Section 8 of the Companies Act, 2013 (earlier Section 25 of the Companies Act, 1956). B Only covers Membership / Chairmanship of Audit Committee and Stakeholders Relationship Committee of public limited companies. As at 31st December, 2016, in compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”), the Company’s Board of Directors headed by its Chairman and Managing Director, Mr. Suresh Narayanan comprised seven other directors, out of which five directors are Independent Non-Executive Directors including a woman director. None of the Independent Directors of the Company serve as an Independent Director in more than seven listed companies and where any Independent Director is serving as whole-time director in any listed company, such director is not serving as Independent Director in more than three listed companies. At the 57th Annual General Meeting held on 12th May, 2016 the shareholders approved the appointment of Dr. Rakesh Mohan as an Independent Non-Executive Director to hold office for a period of five consecutive years for a term upto 30th June, 2020. The Company issued a letter of appointment to the Independent Director as per Schedule IV of the Companies Act, 2013 and terms and conditions of his appointment have been disclosed on the website of the Company. (web link: https://www.nestle.in/investors/directorsandofficers). During the year, the Board met five times on 12th February, 2016, 12th May, 2016, 29th July, 2016, 28th October, 2016 and 5th December, 2016. The maximum gap between any two Board Meetings was less than one hundred and twenty days. All material information was circulated to the directors before the meeting or placed at the meeting, including minimum information required to be made available to the Board as

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prescribed under Part A of Schedule II of Sub-Regulation 7 of Regulation 17 of the Listing Regulations. During the year, separate meeting of the Independent Directors was held on 12th February, 2016 without the attendance of non-independent directors and members of the management. All Independent Directors attended the said meeting, except Dr. Rakesh Mohan, who was appointed after this date. The Company has proper systems to enable the Board to review on a half-yearly basis compliance reports of all laws applicable to the Company, as prepared by the Company as well as to assess the steps taken by the Company to rectify instances of non-compliances. The Company has familiarisation programme for Independent Directors with regard to their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, the business model of the Company etc. The familiarisation programme alongwith details of the same imparted to the Independent Directors during the year are available on the website of the Company (web link: https://www. nestle.in/investors/directorsandofficers). None of the Independent Non-Executive Directors held any equity shares or convertible instruments of the Company during the financial year ended 31st December, 2016. None of the Directors had any relationships inter-se. Compliance with the Code of Conduct

The Company has adopted the “The Nestlé India Code of Business Conduct” (Code). The Code is available on the website of the Company (web link https://www.nestle.in/investors/policies). The Chairman and Managing Director has given a declaration that the members of the Board of Directors and Senior Management Personnel have affirmed compliance with the Code during the year 2016. AUDIT COMMITTEE

The powers, role and terms of reference of the Audit Committee covers the areas as contemplated under Section 177 of the Companies Act, 2013 and Regulation 18 of Listing Regulations, as applicable, besides other terms as referred by the Board of Directors. The powers include investigating any activity within its terms of reference as specified by the Board and seeking information from any employee, obtain professional advice from external sources, secure attendance of outsiders with relevant expertise, if considered required and have full access to information contained in the records of the Company. The role includes oversight of Company’s financial reporting process and disclosure of financial information to ensure that the financial statements are correct, sufficient and credible; recommending the appointment, re-appointment, remuneration and terms of appointment of auditors and approval of payment for any other services rendered by statutory auditors; reviewing with the management quarterly results and annual financial statements before submission to the Board for approval; approval or any subsequent modification of any transactions of the Company with related parties; review and monitor the auditor’s independence and performance and effectiveness of audit process; scrutiny of inter corporate loans and investments, if any; evaluation of internal financial controls and risk management system; and reviewing the functioning of the whistle blower mechanism. The Committee mandatorily reviews information such as internal audit reports related to internal control weakness, management discussion and analysis of financial condition and result of operations, statement of significant related party transactions and such other matters as prescribed. Mr. Ashok Kumar Mahindra, an Independent Non-Executive Director, is the Chairman of the Audit Committee. Mr. Rajya Vardhan Kanoria and Mr. Ravinder Narain, Independent Non-Executive Directors are members of Audit Committee. All members of the Audit Committee are financially literate and Mr. Ashok Kumar Mahindra and Mr. Rajya Vardhan Kanoria have related financial management expertise by virtue of their comparable experience and background. The Company Secretary acts as the Secretary to the Committee. The Director-Finance & Control and CFO, Head of Internal Control and Costing, Head of Financial Accounting and Reporting and Deputy Company Secretary are permanent invitees to the Meetings of the Audit Committee. The Chief Internal Auditor, the concerned partners/ authorised representatives of Statutory Auditors and Cost Auditors are also invited to the meetings of the Audit Committee. During the year, the Audit Committee met four times on 11th February, 2016, 11th May, 2016, 29th July, 2016 and 28th October, 2016 and all members of the Committee attended the aforesaid meetings. The maximum gap between any two meetings was less than one hundred and twenty days. NOMINATION AND REMUNERATION COMMITTEE

The powers, role and terms of reference of the Nomination and Remuneration Committee covers the areas as contemplated under Section

2 Nestle AR 2016-17 070417.indd 70 4/7/2017 4:17:12 PM 178 of the Companies Act, 2013 and Regulation 19 of Listing Regulations, besides other terms as referred by the Board of Directors. The role includes formulation of criteria for determining qualifications, positive attributes and independence of a director and recommending to the Board a policy relating to the remuneration for the directors, key managerial personnel and other employees; formulation of criteria for evaluation of Independent Directors and the Board; devising a policy on diversity of Board of Directors; and identification of persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board of their appointment, removal and noting their cessation. Mr. Rajya Vardhan Kanoria, Independent Non-Executive Director, is the Chairman of the Committee, Mr. Ravinder Narain and Mr. Ashok Kumar Mahindra, Independent Non-executive Directors, are the members of the Committee. The Chairman and Managing Director; and Head of Human Resources are permanent invitees to the Committee meetings. The Company Secretary is the Secretary of the Committee. During the year, the Nomination and Remuneration Committee met thrice on 11th February, 2016, 11th May, 2016 and 29th July, 2016 and all members of the Committee attended the aforesaid meetings. Performance Evaluation

The criteria for performance evaluation cover the areas relevant to the functioning as Independent Directors such as preparation, participation, conduct and effectiveness. The performance evaluation of Independent Directors was done by the entire Board of Directors and in the evaluation of the Directors who are subject to evaluation, had not participated. Remuneration of Directors for 2016

(` in Millions) Name of the Director Sitting Salaries and Perquisites Company’s Commission and Total Fee Allowances Contribution to PF Performance Linked Incentive Mr. Suresh Narayanan1 N.A. 56.49 13.97 2.25 17.44 90.15 Mr. Shobinder Duggal1 N.A. 14.93 15.26 1.46 7.32 38.97 Mr. Aristides Protonotarios1 N.A. 24.68 18.88 1.08 18.75 63.39 Mr. Rajya Vardhan Kanoria 1.08 - - - 0.65 @ 1.73 Mr. Ashok Kumar Mahindra 0.88 - - - 0.65 @ 1.53 Dr. Rakesh Mohan2 0.30 - - - 0.43 @ 0.73 Mr. Ravinder Narain 1.15 - - - 0.65 @ 1.80 Dr. Swati A. Piramal 0.38 - - - 0.65 @ 1.03 1 The Company enters into service contracts with all executive directors for a period of 5 years. The notice period is of three months and the severance fee is the sum equivalent to remuneration for the notice period or part thereof in case of shorter notice. 2 Appointed as Independent Non-Executive Director with effect from 1st May, 2016. @ Represents Commission for the year ended 31st December, 2016 which will be paid, subject to deduction of tax after adoption of the accounts by the shareholders at the Annual General Meeting. Sitting fee indicated above also includes payment for Board-level committee meetings. The above remuneration of Executive Directors does not include provision for incremental liability on account of pension, gratuity, compensated absences and long service awards since actuarial valuation is done for the Company as a whole. The appointment of executive directors is by virtue of their employment with the Company as management employees and therefore, their terms of employment are governed by the applicable policies at the relevant point in time. Commission is subject to adequate profits being earned. A fair portion of the Executive Director’s Performance Linked Incentive is linked to Company’s performance. This creates alignment with the strategy and business priorities to enhance shareholder value. The total reward package for Executive Directors is intended to be market competitive with strong linkage to performance in line with Company’s Remuneration Policy. The Non-executive directors are paid remuneration based on their contribution and current trends. Sitting fees is paid for attending each meeting of the Board and Committees thereof. Additionally, the non-executive directors are entitled to remuneration up to an aggregate limit of one percent per annum of the net profits of the Company, provided that none of the directors shall receive individually a sum exceeding ` 10,00,000/- (Rupees ten lakhs only), as approved by the members at the Annual General Meeting held on 12th May, 2014. Within the aforesaid limit, the commission payable is determined by the Board and equal amount of commission is payable to Independent Non-

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Executive Directors on a pro-rata basis. During the year under review, remuneration of non-executive directors was approved by the Board of Directors with the interested non-executive directors, not participating or voting, as per the terms approved by the shareholders at the Annual General Meeting. The Company does not have any stock option scheme. The Company participates in the Nestlé Performance Share Unit Plan (‘Plan’) of Nestlé S.A., whereby selected employees are granted non-tradable Performance Share Units of Nestlé S.A. Perquisites of the Whole-time/ Managing Director include, inter-alia, Leave Travel and payments for the Restricted Stock Units/ Performance Share Units of Nestlé S.A. vested during the year equal to the market value of the underlying shares on the date of vesting. As required, a brief profile and other particulars of the Director seeking reappointment is given in the Notice of the 58th Annual General Meeting and forms part of the Corporate Governance Report. STAKEHOLDERS RELATIONSHIP COMMITTEE

The Stakeholders Relationship Committee oversees, inter-alia, redressal of shareholder and investor grievances, transfer / transmission of shares, issue of duplicate shares, exchange of new design share certificates, recording dematerialisation/ rematerialization of shares and related matters. Mr. Ravinder Narain, Independent Non-Executive Director, is the Chairman of the Stakeholders Relationship Committee. Mr. Rajya Vardhan Kanoria and Mr. Shobinder Duggal are the members of the Committee. Mr. B. Murli, Senior Vice President – Legal & Company Secretary acts as the Compliance Officer to the Committee. The Committee met four times during the year on 11th February, 2016, 12th May, 2016, 29th July, 2016 and 28th October, 2016. All members of the Committee attended the aforesaid meetings. During the year, 11 complaints were received from shareholders and investors. All the complaints have been resolved to the satisfaction of the complainants and no investor complaint was pending at the beginning or at the end of the year. The Company has acted upon all valid requests for share transfer received during 2016 and no such transfer is pending. RISK MANAGEMENT COMMITTEE

Mr. Shobinder Duggal, Director – Finance & Control and CFO is the Chairman of the Committee and Mr. Aristides Protonotarios, Director – Technical and Mr. Anurag Dikshit, Head of Treasury and M&A are the other members of the Committee. The Company Secretary acts as the Secretary to the Committee. The roles and responsibilities of the Risk Management Committee are as prescribed under Regulation 21 of the Listing Regulations and includes monitoring and review of risk management plan on a quarterly basis and reporting the same to the Board of Directors periodically as it may deem fit, in addition to any other terms as may be referred by the Board of Directors, from time to time. During the year, the Committee met four times on 16th March, 2016, 22nd June, 2016, 5th September, 2016 and 15th December, 2016, and all the members of the Committee attended these meetings except for one meeting held on 5th September, 2016, where Mr. Shobinder Duggal was granted leave of absence. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

The Committee oversees corporate social responsibility, corporate governance and other related matters as may be referred by the Board of Directors. This Committee also discharges the role of Corporate Social Responsibility Committee under Section 135 of the Companies Act, 2013 which includes formulating and recommending to the Board, a Corporate Social Responsibility (CSR) Policy indicating the activities to be undertaken by the Company, as per Schedule VII to the Companies Act, 2013; recommending the amount of expenditure to be incurred; and monitoring the CSR Policy of the Company. The Committee comprises Dr. Swati A. Piramal, Independent Non-Executive Director, as the Chairperson of the Committee, Mr. Suresh Narayanan, Chairman and Managing Director and Mr. Ravinder Narain, Independent Non-Executive Director as other members of the Committee. The Company Secretary acts as the Secretary to the Committee. The Committee met thrice during the year on 12th February, 2016, 12th May, 2016 and 29th July, 2016. All the members attended the above meetings.

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The Chairman and Managing Director; and the Director - Finance & Control and CFO of the Company have certified to the Board of Directors, inter alia, the accuracy of financial statements and adequacy of internal controls for the financial reporting as required under Regulation 17(8) of the Listing Regulations for the year ended 31st December, 2016. GENERAL BODY MEETINGS

Location and time of last three Annual General Meetings (AGMs) are as under: Year & Date Time Venue 12.05.2016 10.00 A.M. 15.05.2015 10.00 A.M. Air Force Auditorium, Subroto Park, New Delhi - 110 010 12.05.2014 10.00 A.M. Three Special Resolutions were passed by the shareholders at the 55th Annual General Meeting held on 12th May, 2014 of the Company 1) approval of amendment in the Articles of Association for increase in the number of maximum directors of the Company; (2) approval of borrowing limits under Section 180(1)(c) of the Companies Act, 2013; and (3) approval of the commission payable to Non-Executive Directors of the Company. No other resolution was passed as Special Resolution in the last three Annual General Meetings. During the year, no special resolution was passed through postal ballot. None of the businesses proposed to be transacted in the ensuing Annual General Meeting require special resolution through postal ballot. MEANS OF COMMUNICATION

The quarterly results of the Company were widely published in leading newspapers such as Financial Express and Jansatta and also displayed at the Company’s website www.nestle.in. All official press releases, presentations to analysts and institutional investors and other general information about the Company are also available on the Company’s website. The presentations made to the institutional investors or analysts, if any, are not communicated individually to the shareholders of the Company. However, in addition to uploading the same on the website of the Company, the presentations are sent to the Stock Exchange for dissemination. GENERAL SHAREHOLDER INFORMATION Annual General Meeting Day, Date and Time : Thursday, 11th May, 2017 at 10:00 a.m. Venue : Air Force Auditorium, Subroto Park, New Delhi – 110 010. Financial Calendar, 2017 (tentative) First Quarter Results : Second week of May, 2017 Second Quarter and Half-yearly Results : Last week of July, 2017 Third Quarter Results : Last week of October, 2017 Annual Results : February / March, 2018 Financial Year : 1st January to 31st December Annual Book Closure : 23rd May, 2017 to 24th May, 2017 (both days inclusive) Dividend payments: Final dividend of ` 23/- per equity share has been recommended by the Board of Directors and subject to the approval of the shareholders at the ensuing Annual General Meeting is proposed to be paid on and from 2nd June, 2017. The First, Second and Third interim dividends for the year 2016 of ` 12/- per equity share, ` 12/- per equity share and `16/- per equity share of ` 10/- each were paid on/from 31st May, 2016, 19th August, 2016 and 22nd December, 2016, respectively.

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Listing on Stock Exchanges and Stock Code

Shares of the Company are listed at BSE Limited, Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai – 400 001. The Company’s Stock Code is 500790. The ISIN Number of Nestlé India Limited on both the NSDL and CDSL is INE239A01016. Market Price Data: High/Low in each month of Calendar Year, 2016 on the BSE Ltd., Mumbai Month High (`) Low (`) Month High (`) Low (`) January 5,850.00 5,390.00 July 7,390.00 6,400.00 February 5,574.90 4,990.00 August 7,230.00 6,490.00 March 5,826.15 5,006.00 September 6,705.00 6,200.00 April 6,249.00 5,360.00 October 7,061.95 6,457.30 May 6,350.00 5,490.00 November 6,968.40 5,701.05 June 6,700.00 6,125.00 December 6,388.85 5,750.00 [Source: www.bseindia.com]

The Company had paid Annual Listing Fees for the Financial Year 2016-17. Performance in comparison to BSE Sensex

(Closing value of Nestlé share price vs BSE Sensex on the last trading day of the month) Base is considered to be 100 as at 31st December, 2015

[Source: www.bseindia.com] Registrar and Share Transfer Agents

M/s. Alankit Assignments Limited, 1E/13, Jhandewalan Extension, New Delhi -110 055. Share Transfer System

Share transfers are registered and returned in the normal course within a period of 15 days from the date of receipt. Requests for dematerialisation of shares are processed and confirmation thereof is given to the respective depositories i.e. National Securities Depository Ltd. (NSDL) and Central Depository Services India Limited (CDSL) within the statutory time limit from the date of receipt of share certificates provided the documents are complete in all respects.

2 Nestle AR 2016-17 070417.indd 74 4/7/2017 4:17:13 PM Shareholding Pattern as on 31st December, 2016 Category of Shareholder Number of Shares Percent of Total Shares Promoter and Promoter Group (A) 60,515,079 62.76 Public Shareholding Mutual Funds 1,532,818 1.59 Foreign Portfolio Investor 12,798,528 13.27 Financial Institutions/ Banks 170,813 0.18 Insurance Companies 4,707,578 4.88 Central Government/State Government(s) 104,512 0.11 Individuals 13,503,636 14.01 NBFCs 9,222 0.01 Any Other - Bodies Corporate 2,445,822 2.54 - Overseas Corporate Body 500 0.00 - NRIs 626,565 0.65 - Trust 633 0.00 - Foreign Nationals 10 0.00 Total Public Shareholding (B) 35,900,637 37.24 Total Shareholding (A + B) 96,415,716 100.00 Distribution of shareholding as on 31st December, 2016 No. of Shares Number of Shareholders Number of Shares Percent of total Shares 1 to 500 73,389 3,820,664 3.96 501 to 1,000 2,381 1,726,712 1.79 1,001 to 2,000 1,032 1,471,643 1.53 2,001 to 3,000 353 878,755 0.91 3,001 to 4,000 158 553,444 0.57 4,001 to 5,000 116 526,017 0.55 5,001 to 10,000 250 1,745,111 1.81 10,001 and above 345 85,693,370 88.88 Total 78,024 96,415,716 100.00 Dematerialisation of shares

98.45% equity shares of the Company have been dematerialised as on 31st December, 2016. Outstanding ADRs / GDRs / Warrants or any convertible instruments, conversion date and likely impact on equity

Not applicable. Commodity price risk or foreign exchange risk and hedging activities: During the year 2016, the Company had managed the foreign exchange risk and hedged to the extent considered necessary. The Company enters into forward contracts for hedging foreign exchange exposures against exports and imports. The details of foreign currency exposure are disclosed in Note No. 47 to the Annual Financial Statements. Plant Locations

The Company’s plants are located at Moga, Samalkha, Nanjangud, Choladi, Ponda, Bicholim, Pantnagar and Tahliwal. Address for correspondence

Shareholder Services, M – 5A, Connaught Circus, New Delhi – 110 001. Phone No.: 011-23418891, Fax. No.:011-23415130 E-mail for investors: [email protected]

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SEBI toll-free helpline service for investors: 1800 22 7575 (available on all days from 9:30 a.m. to 5:30 p.m. excluding declared holidays). SEBI investors’ contact for feedback and assistance: tel. 022-26449188, e-mail: [email protected] MANAGEMENT DISCUSSION AND ANALYSIS REPORT (within the limits set by the Company’s competitive position) Industry structure and developments, segment wise or product-wise performance, outlook, risks and opportunities of the Company and discussion on financial performance with respect to the operational performance, has been covered in the Directors’ Report – more specifically under the sections on Financial Results and State of Company’s Affairs and Management Analysis, Exports, Business Development of the Company. The Company has an adequate system of internal controls to ensure that transactions are properly authorised, recorded, and reported, apart from safeguarding its assets. The internal control system is supplemented by well-documented policies, guidelines and procedures and reviews carried out by the Company’s internal audit function, which submits reports periodically to the Management and the Audit Committee of the Board. In order to foster an improved internal control culture in the Company, wherein every employee is fully aware of all the major risk/controls faced in his / her work sphere and assumes responsibility for the controls performed therein, the Company has inter alia implemented a tool called “Controls Manager” which works on the basic concept of Control Self-Assessment. The Self-Assessments by process / control owner are also used as the basis of CEO/CFO certification as required under Regulation 17(8) of the Listing Regulations. Your Company has a favourable work environment that motivates performance, customer focus and innovation while adhering to the highest degree of quality and integrity. As part of manpower development and training and with an aim to enhance operational efficiency, employees of the Company have been sent on postings and assignments to the other Nestlé Group companies. Manpower figure of the Company as on 31st December, 2016 was 7,588. DISCLOSURES

During the year 2016, the Company had no materially significant related party transaction, which is considered to have potential conflict with the interests of the Company at large. Transactions with related parties are disclosed in Note No. 40 to the Annual Financial Statements. The Company has formulated a policy on materiality of Related Party Transactions and also on dealing with Related Party Transactions. The said policy is also available on the website of the Company (web link https://www.nestle.in/investors/policies). The equity shares of the Company are listed on BSE Limited, Mumbai and the Company has complied with all the applicable requirements of capital markets and no penalties or strictures have been imposed on the Company by Stock Exchange, SEBI or any other statutory authority, on any matter relating to the capital markets, during the last three years. The standard of behaviour of Nestlé India is governed by significant documents “The Nestlé Corporate Business Principles”, “The Nestlé Management and Leadership Principles” and “Nestlé India Code of Business Conduct”. Employees can report to the Company Secretary, on a confidential basis, any practices or actions believed to be inappropriate or illegal under Nestlé India Code of Business Conduct (“the Code”). The Code provides for adequate safeguards against victimisation of Director(s)/Employee(s) who avail of the mechanism and also provides for direct access to the Chairman of the Audit Committee in exceptional cases. It is affirmed that no person has been denied access to the Audit Committee. As an additional facility to all the Directors and Employees of the Company, the Company under the Code provides Integrity Reporting System, an independent third party operated free phone and web based facility for the directors and employees of the Company across all locations. The Company also provides an independent third party operated free phone and web based facility, “Tell us”, to all internal and external stakeholders with a dedicated communication channel for reporting potential instances of non-compliance with Nestlé Corporate Business Principles. Further, the Company has appointed Ombudsman for Infant Code, under which employees can report Infant Code violations directly to the Ombudsman, with adequate safeguard to protect the employee reporting. The Company has complied with all the mandatory requirements specified in Regulations 17 to 27 and clauses (b) to (i) of sub – regulation (2) of Regulation 46 of the Listing Regulations. This Corporate Governance Report of the Company for the year 2016 or as on 31st December, 2016 are in compliance with the requirements of SEBI as per Listing Regulations.

2 Nestle AR 2016-17 070417.indd 76 4/7/2017 4:17:13 PM The status of adoption of the non-mandatory requirements as specified in sub – regulation 1 of Regulation 27 of the Listing Regulations are as follows: (a) The Board: The Chairman of the Company is Executive Chairman; (b) Shareholder Rights: Half-yearly and other quarterly financial statements are published in newspapers, uploaded on Company’s website www.nestle.in and sent in soft copy to members who have registered their email address with the Company; (c) Modified opinion(s) in audit report: The Company already has a regime of un-qualified financial statements. Auditors have raised no qualification on the financial statements; (d) Separate posts of Chairperson and CEO: Mr. Suresh Narayanan is the Chairman and Managing Director of the Company; and (e) Reporting of Internal Auditor: The Chief Internal Auditor of the Company reports to the Director – Finance and Control & CFO and has direct access to the Audit Committee.

On behalf of the Board of Directors

Date : 15th February, 2017 Suresh Narayanan Place : Gurgaon Chairman and Managing Director

INDEPENDENT AUDITORS’ CERTIFICATE TO THE MEMBERS OF NESTLÉ INDIA LIMITED

1. We have examined the compliance of conditions of Corporate Governance by NESTLÉ INDIA LIMITED (“the Company”), for the year ended on December 31, 2016, as stipulated in Regulations 17 to 27 and clauses (b) to (i) of regulation 46(2) and para C, D and E of Schedule V of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”). 2. The compliance of conditions of Corporate Governance is the responsibility of the Management. Our examination was limited to the procedures and implementation thereof, adopted by the Company for ensuring compliance with the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. 3. We have examined the relevant records of the Company in accordance with the Generally Accepted Auditing Standards in India, to the extent relevant, and as per the Guidance Note on Certification of Corporate Governance issued by the Institute of the Chartered Accountants of India. 4. We conducted our examination of the Statement in accordance with the Guidance Note on Reports or Certificates for Special Purposes issued by the Institute of Chartered Accountants of India (ICAI) and Standards on Auditing issued by the Institute of Chartered Accountants of India. The Guidance Note requires that we comply with the ethical requirements of the Code of Ethics issued by the ICAI. 5. We have complied with the relevant applicable requirements of the Standard on Quality Control (SQC) 1, Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements. 6. In our opinion and to the best of our information and according to our examination of the relevant records and the explanations given to us and the representations made by the Directors and the Management, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in regulation 17 to 27 and clauses (b) to (i) of regulation 46(2) and para C, D and E of Schedule V of the Listing Regulations during the year ended December 31, 2016. Restriction on Use

7. This certificate has been issued on the request of the Company pursuant to regulations as stipulated in the Listing Regulations and is not intended to be used for any other purpose. Accordingly, we state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the Management has conducted the affairs of the Company.

For A. F. FERGUSON & CO. Chartered Accountants (Firm’s Registration No. 112066W)

Manjula Banerji NEW DELHI, February 15, 2017 (Partner) Membership No. 86423

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ANNEXURE - 2 TO THE BOARD’S REPORT REMUNERATION POLICY This Remuneration Policy relating to remuneration for the directors, key managerial personnel and other employees, has been formulated by the Nomination and Remuneration Committee (hereinafter “Committee”) and approved by the Board of Directors. OBJECTIVES:

The objectives of this policy is to stipulate criteria for: l Appointment, reappointment, removal of Directors, KMPs and Senior Management. l Determining qualifications, positive attributes and independence of a director and recommend to the Board. l Retain, motivate and promote talent and to ensure long term sustainability of talented managerial persons and create competitive advantage to run the operations of the Company successfully. l Consider and determine the remuneration, based on the fundamental principles of payment for performance, for potential, and for growth. CRITERIA FOR APPOINTMENT

The appointment shall be based on the followings criteria: l Ethical standards of integrity and probity, qualification, expertise and experience of the person for appointment l Age, number of years of service, specialized expertise and period of employment or association with the Company l Special achievements and operational efficiency which contributed to growth in business in the relevant functional area l Constructive and active participation in the affairs of the Company l Exercising the responsibilities in a bonafide manner in the interest of the Company l Sufficient devotion of time to the assigned tasks l Diversity of the Board l Demonstrable leadership qualities and interpersonal communication skills, devote to the role, compliant with the rules, policies and values of the Company and does not have any conflicts of interest. l Transparent, unbiased and impartial and in accordance with appropriate levels of confidentiality. l Appointment of Directors and KMPs in compliance with the procedure laid down under the provisions of the Companies Act, 2013, rules made thereunder or any other enactment for the time being in force CRITERIA FOR REMUNERATION

The Remuneration Policy reflects on certain guiding principles of the Company such as aligning remuneration with the longer term interests of the Company and its shareholders, promoting a culture of meritocracy and creating a linkage to corporate and individual performance, and emphasizing on line expertise and market competitiveness so as to attract the best talent. It also ensures the effective recognition of performance and encourages a focus on achieving superior operational results. The level and composition of remuneration shall be reasonable and sufficient to attract, retain and motivate the directors, key managerial personnel and other employees of the quality required to run the Company successfully. The relationship of remuneration to performance should be clear and meet appropriate performance benchmarks. The remuneration to directors, key managerial personnel and senior management personnel should also involve a balance between fixed and incentive pay reflecting short and long term performance objectives appropriate to the working of the Company and its goals. The remuneration of the Non-Executive Directors shall be based on their contributions and current trends, subject to regulatory limits. Sitting fees is paid for attending each meeting(s) of the Board and Committees thereof. Additionally equal amount of commission is paid to Non- executive directors on a pro-rata basis, within limits approved by shareholders.

On behalf of the Board of Directors

Date : 15th February, 2017 Suresh Narayanan Place : Gurgaon Chairman and Managing Director

2 Nestle AR 2016-17 070417.indd 78 4/7/2017 4:17:13 PM ANNEXURE - 3 TO THE BOARD’S REPORT ANNUAL REPORT ON CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES 1. A brief outline of the Company’s CSR policy, including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs.

The Company aims to enhance lives with science-based nutrition and health solutions for all stages of life, helping people care for themselves and their families and is committed to enabling people improve their nutrition, health and wellness. In addition to nutrition, the Company focuses on water as water scarcity is a serious issue in India and the cornerstone for food security. The Company also focuses on rural development for the overall well-being of farmers, rural communities, small entrepreneurs and suppliers. The Company actively manages its commitments to environmental and social sustainability, for sustainable growth and development of the community. The Company continues to engage with stakeholders including communities, civil society, expert organisations and the Government and would take up such other CSR activities in line with Government’s intent and which are important for society. The above areas are mapped with the activities as prescribed in Schedule VII to the Companies Act, 2013 in the Annexure. The CSR Policy of the Company is available on the Company’s website (http://www.nestle.in/investors/policies). While the focus of CSR efforts will be in the areas around Company operations, the Company may also undertake projects where societal needs are high or in special situations (such as in the case of natural disasters etc.). 2. The Composition of the CSR Committee

a. Dr. Swati Ajay Piramal – Chairperson b. Mr. Suresh Narayanan – Member c. Mr. Ravinder Narain – Member 3. Average net profit of the Company for last three financial years: ` 14,165.6 million 4. Prescribed CSR Expenditure (two per cent of the amount as in item 3 above): ` 283.3 million 5. Details of CSR spent during the year 2016.

a. Total amount to be spent for the year 2016: ` 312.2 million including ` 28.9 million as part of 2015 CSR expenditure. b. Amount unspent, if any: Not Applicable c. Manner in which the amount spent during the financial year is detailed below:

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(1) (2) (3) (4) (5) (6) (7) (8) Sl. CSR project or Sector Projects or programs Amount Amount Cumulative Amount spent: Direct or through No activity identified in which (1) Local area or other outlay outlay expenditure implementing Agency the (2) Specify the State (budget) (budget) up to the Project or district where the Project or Project or reporting is Projects or programs program wise program wise period covered was undertaken (` in million) (` in million) (` in million) 3 Clean drinking water (i)+(iv) Punjab, Himachal 53.0 (a) 14.7 53.2 (a) Direct projects and water Pradesh, Haryana, Goa, (b) 38.5 (b) Enable Health Society awareness programme Karnataka, Tamil Nadu 4 Sanitation projects (i) Punjab, Himachal 18.0 17.8 17.8 Direct Pradesh, Uttarakhand, Haryana, Goa, Karnataka, Tamil Nadu, Maharashtra 5 Water conservation in (i) Karnataka 6.5 6.5 6.5 AgSri Agricultural Services Private agriculture Limited 6 Livelihood (ii) Goa 3.1 3.1 3.1 Nidan and National Association of enhancement for Street Vendors of India (NASVI) street food vendors 7 Educate the girl child (ii) All India 65.5 65.7 65.7 Direct 8 Cancer detection and (i) Maharashtra 1.0 1.0 1.0 Indian Cancer Society treatment 9 Relief efforts (viii) Bihar, Assam 5.2 (a) 5.0 5.2 (a) Indian Red Cross Society (b) 0.2 (b) Ratna Nidhi Charitable Trust The amount indicated in column (6) and (7) above is the expenditure on projects or programs. There are overheads of ` 14.7 million, and the total expenditure including overheads is ` 313.6 million. CSR programmes are detailed under Point 7. 6. In case the Company has failed to spend the two per cent of the average net profit of the last three financial years or any part thereof, the Company shall provide the reasons for not spending the amount in its Board report. Not Applicable. 7. Details of CSR programmes 7.1 Nestlé Healthy Kids Programme Malnutrition rates in India are dismal, with one in three of the world’s malnourished children living in India. Undernourished children have lower resistance to infection and are more likely to die from common childhood ailments. Adolescents make up one fifth of the population in India and many health problems later in life can be avoided by adopting healthy lifestyle habits during adolescence. Adolescents experience dramatic physical growth and development during puberty, which in turn increases their requirements for nutritious food. Inadequate diets and poor health affect adolescents’ ability to learn and work at maximum productivity. The Nestlé Healthy Kids Programme has been developed with a focus to raise nutrition, health and wellness awareness of school age children. The unbranded programme has been conducted since 2009, in village schools around the Company’s manufacturing facilities with the objective of raising awareness regarding good nutritional and cooking practices, good hygiene and promoting physical fitness. The programme is conducted in partnership with six leading regional Universities through the Department of Home Science and Food Science. The Universities collect information on the nutrition status of the region and local food habits through their extension activities and the programme content is developed jointly with Nestlé India nutritionists. Each student receives over twelve hours of nutrition training and pre and post programme behavioural and knowledge tests are conducted to measure the effectiveness of learning and implementation. The Company joined hands with the NGO Magic Bus India Foundation, one of India’s largest behaviour change organisations, to extend its commitment to promote healthier lifestyles through the ‘sports for development’ model. Children are engaged in interactive sessions in which they receive nutrition and health knowledge and are encouraged to play regularly. The year-long programme, designed with 32 sessions for each child, ran across Delhi, Mumbai, Chennai, Bangalore, Vishakhapatnam, Hyderabad, Mysore and Guwahati in 2016. The Nestlé Healthy Kids Programme has reached out to over 184,000 adolescents encouraging them to live healthier lives.

2 Nestle AR 2016-17 100417.indd 80 4/10/2017 3:24:17 PM 7.2 Jagriti

India is faced with an unparalleled child survival and health challenge. Malnutrition is an underlying cause of 2.6 million child deaths each year. Millions others survive, but suffer lifelong physical and cognitive impairments because they do not get the nutrients needed early in life. When children start their lives malnourished, the negative effects are largely irreversible as pregnancy and infancy are the most important periods for brain development. It is therefore important to intervene in the community to change the dynamics that create the barriers to development for children and mothers. The Company rolled out Project Jagriti in partnership with the Mamta Health Institute for Mother and Child as part of its commitment to provide education programmes for good nutrition and feeding practices, improving nutrition and health at key life stages – adolescence to caregivers. The programme started with a pilot in Delhi, reaching out to over 100,000 people living in slum conditions to educate and encourage community support for good nutrition and breastfeeding practices. It focused on creating peer mentor support groups for counselling on good nutrition for pregnant and lactating women, encouraging the early initiation of breastfeeding, exclusive breastfeeding, improving breastfeeding practices and encouraging the uptake of public health services. The approach involved the health care system and stakeholders from the community to create an enabling environment for the best health outcomes. In 2016, the project was extended across 15 districts in 7 states and 1 union territory (Rajasthan, Karnataka, Maharashtra, Chandigarh, Delhi, Odisha, Uttar Pradesh and Bihar) with a goal to accelerate the uptake of health services by improving continuum of care on health, nutrition and hygiene practices amongst adolescents, young couples and caregivers. The project aims to reach out to 1.6 million beneficiaries over the next 3 years. 7.3 Clean Drinking Water Projects and Water Awareness Programme

Although India has made progress in the supply of safe drinking water, there still exist huge disparities across urban and rural geographies. The World Health Organisation estimates that, about 38 million people in India are affected by waterborne diseases each year of which, over 75% are children. 780,000 deaths are attributable to contaminated water and more than 400,000 can be attributed to diarrhoea alone. To help improve access to safe drinking water, the Company began constructing clean drinking water facilities in schools around all its factories in 1999. Till date, the Company has constructed over 244 water tanks across six states in India benefitting more than 127,500 students. The water tanks source water from deep below ground level and the sourced water is stored in hygienic tanks enclosed in a specially designed facilities to preserve the quality of the water. The Company also conducts periodic water quality checks to ensure safe drinking water, while involving the school and surrounding community through joint ownership of the water tanks, which helps to establish better upkeep and maintenance of the tanks. For locations where groundwater does not meet quality standards, the Company has partnered with the NGO Enable Health Society, to provide drinking water treatment plants. The Company conducts Water Awareness Programmes aimed at ensuring hygienic and sustainable water use, reaching out to over 92,500 students. In 2016, the Company partnered with the Department of Medical and Health, Government of Rajasthan to offer access to clean drinking water at 10 Public Health Centres where the company provides clean drinking water through its NGO partner, Enable Health Society as a part of the Adarsh Public Health Center Yojna established by the Government. 7.4 Sanitation Facilities

India continues to face the issues of poor sanitation, which, exacerbated by lack of basic hygiene and sanitation facilities, aggravates the problem of water contamination. With only 40% of India’s population with access to improved sanitation as of 2015, according to The World Bank, it continues to pose significant health risks. Sanitation is an issue that affects everyone but women are often the most vulnerable, it affects their attendance in school and often leaves them at risk of sanitation borne diseases. In order to ensure availability of basic sanitation facilities, the Company has been sponsoring the construction of sanitation facilities (toilets) for girl students in village schools across all its factory locations. Through this initiative, the Company endeavours to eliminate what is considered the major cause of dropouts among girl students in village schools. In 2016, the Company has set up sanitation facilities in government schools in Mumbai, Kolkata and Chennai, in addition to factory locations. Till date the Company has set up over 300 facilities benefitting more than 111,000 girl students.

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7.5 Water Conservation in Agriculture India is facing a severe water crisis with the availability of potable water and ground water drastically decreasing over the years. According to the 2030 Water Resource Group, by 2030, 40 percent of the total population in the country will not have drinking water if the situation remains as is. The agricultural sector remains the largest user of the India’s fresh water, responsible for about 70% of water consumption. The Company launched a water stewardship initiative with AgSRI at the Kabini river Basin in Karnataka. Over the years, the water demand in the catchment has been increasing, leading to inadequate supply. The Company commissioned a study to understand the current water management and implement applicable water interventions. The study found that river water discharges would continue to deplete while the competing requirements for drinking water and irrigation increase. As agriculture is the largest user of water from the catchment, the Company is working with AgSRI to implement pilot projects promoting the System of Rice Intensification and the Sustainable Sugarcane Initiative. The project aims to set up demonstration farms and train farmers on ecologically sustainable practices to reduce the agricultural water withdrawal from the catchment area, while improving agricultural productivity. 7.6 Training for Street Vendors Food safety is a serious public health concern in India. Based on the World Health Organisation’s report on estimates of the global burden of foodborne diseases, disabilities due to food borne diarrhoeal diseases is the highest contributor in the South East Asia region which includes India. The Company joined hands with the Food and Drugs Administration (FDA), Goa and National Association of Street Food Vendors of India (NASVI) to train over 1,000 street vendors in Goa in 2016. The initiative was adopted by the Goa FDA as part of the Food Safety and Standards Authority of India’s 10@10 implementation in the State as “Project Serve Safe Food@Street Food”. The trainings of street vendors included subjects such as health, hygiene, food handling, food safety, garbage disposal and entrepreneurship and participants were awarded with training kits and a certificates at the end of the training. While street food vending is an important source of informal employment for a large number of population, a variety of constraints including lack of knowledge and skills in business, limited training opportunities, and restricted mobility prevent street vendors from improving their capacities. The programme aims to help them improve their income, sustain their livelihoods and enter into strategic employment opportunities in new market conditions. 7.7 Educate The Girl Child 20 million girls drop out of school every year in India and of all children that remain out of school, 53% per cent are girls. The Company partnered with the Nanhi Kali Project, one of the largest activist programmes imparting education to underprivileged girl children across India by pledging its commitment and support to alleviate the number of girl children being denied access to education. The Company launched a country wide awareness campaign about the urgency of this cause, supported the education of girls through Nanhi Kali and provided nutrition awareness training as part of the programme. 7.8 Cancer Detection and Treatment As part of its commitment to promoting healthy lifestyles by promoting healthcare, the Company partnered with the Indian Cancer Society to conduct specialised checks and routine health checks for men and women in the suburban localities of Mumbai, Maharashtra. 7.9 Relief Efforts The Company responded to natural disasters in Assam and Bihar by supporting relief operations. As part of the efforts, the Company supplied packaged food and beverages, including milk, coffee and instant noodles to the people affected. 8. CSR Committee Responsibility Statement The CSR Committee confirms that the implementation and monitoring of the CSR activities of the Company is in compliance with the CSR objectives and the CSR Policy of the Company. On behalf of the Board of Directors

Date : 15th February, 2017 Dr. Swati Piramal Suresh Narayanan Place : Gurgaon Chairperson – Corporate Social Chairman and Managing Director Responsibility Committee

2 Nestle AR 2016-17 070417.indd 82 4/7/2017 4:17:14 PM ANNEXURE - 4 TO THE BOARD’S REPORT Business Responsibility Report SECTION A: GENERAL INFORMATION ABOUT THE COMPANY Sr. No. Particulars Details 1. Corporate Identity Number (CIN) of the Company L15202DL1959PLC003786 2. Name of the Company NESTLÉ INDIA LIMITED 3. Registered address M-5A CONNAUGHT CIRCUS, NEW DELHI-110001 4. Website www.nestle.in 5. E-mail id [email protected] 6. Financial Year reported 31-12-2016 7. Sector(s) that the Company is engaged in (industrial activity Food Processing Industry (covered under various codes as specified code-wise): under NIC 1987 covering food products) 8. List three key products/services that the Company Product ITC Code manufactures/provides (as in balance sheet) 1. Milk Products and Nutrition 0402,1901 2. Prepared Dishes and Cooking 1902,2103 3. Beverages 2101 9. Total number of locations where business activity is Please also refer to Corporate Information page of the Annual Report undertaken by the Company 2016 (a) Number of International Locations (Provide details of Exports to Turkey, Bangladesh, Nepal, Bhutan and UAE major 5) (b) Number of National Locations 8 manufacturing locations, 4 sales branches, head office and nation- wide sales and distribution network 10. Markets served by the Company: Local/ State/ National/ All India and over 35 international markets International SECTION B: FINANCIAL DETAILS OF THE COMPANY Sr. No. Particulars Details 1. Paid up Capital (INR) ` 964.2 Million 2. Total Turnover (INR) ` 91,592.8 Million 3. Total profit after taxes (INR) ` 9,265.4 Million 4. Total Spending on Corporate Social Responsibility (CSR) as Total spending on CSR is 2.21% of average profit after tax of the past percentage of profit after tax (%) 3 years. This includes 0.20% (` 28.9 million) as part of the 2015 CSR, and is detailed in the Annual Report of CSR Activities, ANNEXURE – 3 to the Board’s Report. In addition to the above, the Company also spends about 2.15% (based on broad estimates) on Creating Shared Value (CSV) as a percentage of average profit after tax of the last 3 years, the details of which are provided herein. 5. List of activities in which expenditure in 4 above has been List of CSR activities is detailed in the Annual Report of CSR Activities, incurred ANNEXURE – 3 to the Board’s Report. 1. Nutrition Awareness 2. Rural Development Initiatives 3. Dissemination of Scientific and Nutrition Knowledge

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SECTION C: OTHER DETAILS

Sr. No. Particulars Details 1. Does the Company have any Subsidiary Company/ Companies? No 2. Do the Subsidiary Company/Companies participate in the BR Initiatives Not Applicable of the parent Company? If yes, then indicate the number of such subsidiary Company(s). 3. Do any other entity/entities (e.g. suppliers, distributors etc.) that the The Company participates in the BR initiatives with the participating Company does business with, participate in the BR initiatives of the stakeholders such as farmers, suppliers and distributors. While it is difficult Company? If yes, then indicate the percentage of such entity/entities? to estimate the percentage, the Company endeavours to participate in BR [Less than 30%, 30-60%, More than 60%]. initiatives of such entities to the maximum extent possible. SECTION D: BR INFORMATION

Sr. No. Particulars Details 1. Details of Director/Directors responsible for BR (a) Details of the Director/Director responsible for implementation of the BR DIN Number 06546858 policy/policies Name Mr. Aristides Protonotarios Designation Director-Technical (b) Details of the BR head DIN Number Not Applicable (if applicable) Name Mr. Sanjay Khajuria Designation Senior Vice President - Corporate Affairs Telephone number +91-124-3940000 e-mail id [email protected] 2. Principle-wise (as per NVGs) BR Policy/policies (Reply in Y/N) No. Questions P1 P2 P3 P4 P5 P6 P7 P8 P9 1. Do you have a policy/ policies for… Y Y Y Y Y Y Y Y Y 2. Has the policy being formulated in consultation with the relevant Y Y Y Y Y Y Y Y Y stakeholders? 3. Does the policy conform to any national/ international standards? If yes, Y Y Y Y Y Y Y Y Y specify? @ 4. Has the policy being approved by the Board? Y Y Y Y Y Y Y Y Y Is yes, has it been signed by MD/Owner/CEO/appropriate Board Director? 5. Does the Company have a specified committee of the Board/ Director/ Y Y Y Y Y Y Y Y Y Official to oversee the implementation of the policy? 6. Indicate the link for the policy to be viewed online? Y Y Y Y Y Y Y Y Y

7. Has the policy been formally communicated to all relevant internal and Y Y Y Y Y Y Y Y Y external stakeholders? 8. Does the Company have in-house structure to implement the policy/ policies Y Y Y Y Y Y Y Y Y 9. Does the Company have a grievance redressal mechanism related to the Y Y Y Y Y Y Y Y Y policy/ policies to address stakeholders’ grievances related to the policy/ policies? 10. Has the Company carried out independent audit/ evaluation of the working N N N N N N N N N of this policy by an internal or external agency? (a) If answer to the question at serial number 1 against any principle, is ‘No’, please explain why: (Tick up to 2 options) Not Applicable 3. Governance related to BR (a) Indicate the frequency with which the Board of Directors, Committee of the The Board/Committee will review the BR performance at least Board or CEO to assess the BR performance of the Company. annually. (b) Does the Company publish a BR or a Sustainability Report? What is the Yes, the BRR 2016 is part of the Annual Report, which is hyperlink for viewing this report? How frequently it is published? available on the website of the Company. It is available at: https://www.nestle.in/investors/stockandfinancials/annualreports and is published annually.

2 Nestle AR 2016-17 070417.indd 84 4/7/2017 4:17:14 PM SECTION E: PRINCIPLE-WISE PERFORMANCE Principle 1: Ethics, Transparency and Accountability

1. Does the policy relating to ethics, bribery and corruption cover only the Company? Yes/ No. Does it extend to the Group/Joint Ventures/ Suppliers/Contractors/NGOs /Others?

The Nestlé India Code of Business Conduct includes the Company’s policy on ethics, bribery and corruption covering the Company and all its vendors, contractors and associates. Other significant documents from the Nestlé Group, which define the standard of behaviour of the Company, are Nestlé Corporate Business Principles, Nestlé Management and Leadership Principles and the Nestlé Supplier Code. 2. How many stakeholder complaints have been received in the past financial year and what percentage was satisfactorily resolved by the management? If so, provide details thereof, in about 50 words or so.

During the year, 11 complaints were received from shareholders and investors. All complaints have been resolved to the satisfaction of the complainants and no investor complaint was pending at the end of the year. Principle 2: Product Life Cycle Sustainability 1. List up to 3 of your products or services whose design has incorporated social or environmental concerns, risks and/or opportunities.

The Company has a legacy of providing consumers with high quality products under four major categories - Milk Products and Nutrition, Beverages, Prepared Dishes and Cooking Aids, Chocolates and Confectionary. The Company has a range of Popularly Positioned Products (PPP) fortified with micronutrients which provide nutritional value at an affordable cost. These include the following among others: l MAGGI Masala-ae-Magic Seasoning mix: Each serving of 2 grams provides 15% of the daily requirement* for Vitamin A, Iron and Iodine {*RDA for Adult Sedentary Male as per Nutrient requirement and recommended daily allowance for Indians, ICMR 2010}. l NESTLÉ a+ GREKYO: Greek style yogurt is a healthy snack option providing high protein and 30% of the daily requirement* for calcium per serve {*RDA for Adult Sedentary Male as per Nutrient requirement and recommended daily allowance for Indians, ICMR 2010}. l NESTLÉ a+ Pro-Grow Milk: This product caters to children providing the benefit of 20% more milk protein along with the goodness of calcium. l NESTLÉ CEREGROW: A nutritious and tasty junior cereal for children between the ages of 2-5 years, packed with the nourishment of multigrain cereal, milk and fruits l MAGGI Vegetable Atta Noodles: Provides the goodness of vegetables and wheat grain that are a source of fibre. Each serve (80g) provides dietary fibre equal to 3 rotis. l MAGGI Oat Noodles: Provides the goodness of real vegetables and wholegrain oats that are a source of fibre. Each serve (73g) provides fibre equal to 1 bowl of oats. 2. For each such product, provide the following details in respect of resource use (energy, water, raw material etc.) per unit of product (optional):

(a) Reduction during sourcing/production/ distribution achieved since the previous year throughout the value chain? and (b) Reduction during usage by consumers (energy, water) has been achieved since the previous year?

The Company follows a series of Environmental Performance Indicators to monitor its efforts for sustainable use of natural resources in manufacturing. The Company is committed to conservation and optimal utilisation of all resources, reducing waste to zero and full recovery of unavoidable by-products. During the last 15 years, for every tonne of production, the Company has reduced the usage of energy by around 47%, reduced water usage by around 53%, reduced the generation of greenhouse gases by around 55% and the generation of waste water by around 55%.

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3. Does the Company have procedures in place for sustainable sourcing (including transportation)? If yes, what percentage of your inputs was sourced sustainably? Also, provide details thereof, in about 50 words or so.

The Company chooses its suppliers through strictly laid out procedures and engages with them according to the non-negotiable minimum standards described in the Nestlé Supplier Code. These requirements of Business Integrity, Human Rights (labour standards), Health and Safety and Sustainable environmental standards in their business activities, production processes, services provision and their own purchasing procedures, as enshrined in the Nestlé Supplier Code, and apply to all suppliers and their sub-tier suppliers. 4. Has the Company taken any steps to procure goods and services from local and small producers, including communities surrounding their place of work? If yes, what steps have been taken to improve their capacity and capability of local and small vendors?

The Company works with farmer communities to ensure sustainable production in the long-term. During 2016, the Company spent about 88.4% of its total raw material procurement and packaging expenditure on indigenous products. The Company touches the lives of over 200,000 farmers, and practises a strong preference for local procurement of raw materials. In addition to collecting milk and implementing the Nestlé milk district model successfully to ensure a stable livelihood for local dairy farmers, the Company supports the development of milk farmers by assisting them to increase milk productivity and quality through technical assistance, providing veterinary services, subsidised medicines and promotion of sustainable agricultural practices. As part of The NESCAFÉ Plan, the Company trains coffee farmers to develop their agricultural practices in terms of quality, productivity and sustainability while supporting them in obtaining 4C (Common Code for the Coffee Community) certification for better coffee prices. The Company has a dedicated supplier development team that works through the Nestlé – Farmer – Supplier model to create sustainable local souring. The team’s objectives include less reliance on imports, supporting sustainable quality and creating a wider, more flexible supply base. In 2016, the Company supported more than 32 suppliers through technical assistance, added 8 new suppliers/ supplier locations and localised 8 raw materials. The team also works on developing local vendors through technical assistance to meet the desired quality/ regulatory norms for supply to other Nestlé markets. 5. Does the Company have a mechanism to recycle products and waste? If yes what is the percentage of recycling of products and waste (separately as <5%, 5-10%, >10%)? Also, provide details thereof, in about 50 words or so.

To demonstrate the Company’s commitment towards reduction of environmental footprint of its packaging materials, the Company incorporates labelling as per the Nestlé Policy on Environmental Sustainability and its guidelines on Packaging and Design, IS 14534:1998 (Guidelines for Recycling Plastics) and Plastic Waste (Management and Handling) Rules, 2011. The Company’s labelling includes identification of the type of material so as to determine recyclability, anti-litter and recycle logos on products to remind consumers to dispose in a safe and environment friendly way. During 2016, the Company used approximately 35% (by value) of recycled material in packaging and reduced around 800 tonnes of packaging material through packaging optimisation. As per the Nestlé Policy on Environmental Sustainability, the Company focuses on the 3R’s: l REDUCE: Since 1991, the Company has been committed to optimise packaging by volume and weight globally. In 2016 alone, the Company reduced packaging material weight by around 800 tonnes. l RECYCLE: The Company encourages the use of recycled material where ever applicable, and ensures that all packaging material waste from its manufacturing facilities is sent to approved recycling agents for further processing. l RECOVER: The Company supports initiatives to recycle and recover used packaging. In 2014, the Company installed a pilot plant “Gasolyser” at its manufacturing facility in Tahilwal which converts laminate waste to fuel. The Company is also exploring how to create shared responsibility between industries and authorities to find a long term solution to plastic waste management.

2 Nestle AR 2016-17 070417.indd 86 4/7/2017 4:17:14 PM Principle 3: Employee Wellbeing Sr. No. Particulars Details 1. Please indicate the Total number of employees 7,588 2. Please indicate the Total number of employees hired on temporary/ 6,990 contractual/casual basis 3. Please indicate the Number of permanent women employees 585 4. Please indicate the Number of permanent employees with disabilities None of the permanent employees are differently abled 5. Do you have an employee association that is recognised by Yes, there are unions representing permanent blue collar management employees at 7 factory locations of the Company. 6. What percentages of your permanent employees are members of 50.49% this recognised employee association? 7. Please indicate the Number of complaints relating to child labour, No complaints relating to child labour, forced labour, forced labour, involuntary labour, sexual harassment in the last involuntary labour, sexual harassment are pending as of end financial year and pending, as on the end of the financial year. 2016 8. What percentage of your under mentioned employees were given safety and skill up-gradation training in the last year? (a) Permanent Employees 84.46% (b) Permanent Women Employees 76.88% (c) Casual/Temporary/Contractual Employees 100% receive training as part of their induction (d) Employees with Disabilities None of the permanent employees are differently abled Principle 4: Stakeholder Engagement 1. Has the Company mapped its internal and external stakeholders?

Yes, as a result of regular and extensive stakeholder engagement over 100 years, the Company’s business operations have evolved, balancing business priorities and responsibility towards economic, environmental and social sustainability. The Company builds trust though productive relationships, fosters working partnerships and considers stakeholders both internal and external as integral to its business. 2. Out of the above, has the Company identified the disadvantaged, vulnerable & marginalized stakeholders?

Yes. 3. Are there any special initiatives taken by the Company to engage with the disadvantaged, vulnerable and marginalized stakeholders.

The Company engages with over 100,000 milk and 2,200 coffee farmers, among others, through farmer trainings to increase efficiency in productivity and quality, optimise costs and improve social and environmental impact thereby ensuring agriculture remains an attractive place to live, work and invest in, for generations to come. In 2016, the Company also engaged with 4,000 women dairy farmers empowering village women engaged in dairy farming to improve milk quality and productivity, reaching out to a total of over 66,000 women dairy farmers, over the years, since the start of the programme. Nestlé Start Healthy, Stay Healthy is an educational programme for mothers, in partnership with doctors, to give a healthy head start to their babies in the first 1000 days. It is the Company’s commitment to the first 1000 days given its impact on lifelong health of a baby. As part of the Nestlé Start Healthy, Stay Healthy initiative, the Company provide educational material for mothers through doctors regarding nutrition from pregnancy to toddlerhood. The Company also has a dedicated website disseminating the same information: www.starthealthystayhealthy.in In line with the Company’s belief that breastfeeding is best for babies, Nestlé Start Healthy, Stay Healthy in India has actively advocated breastfeeding to mothers, would-be mothers and Health Care Professionals(HCPs) since its launch in 2010. In 2016, it undertook a campaign to educate the support system in a nursing mother’s life to help her breastfeed for longer by sharing her chores and responsibilities. The campaign engaged 16,000 HCPs and garnered 10.1 million views online. In order to enable mothers to nurse out of home, more than 980 breastfeeding rooms were set up in paediatrician clinics across 150 cities in the country.

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The Nestlé Nutrition Institute (NNI) disseminates science-based information and education with health professionals, scientists and nutrition communities in order to create awareness on nutrition science and build capabilities amongst the scientific community on Nutrition. In 2016, NNI conducted more than 2,500 scientific events reaching out to over 70,000 HCPs. Additional initiatives are detailed further in ANNEXURE – 3 to the Board’s Report. Principle 5: Human Rights 1. Does the policy of the Company on human rights cover only the Company or extend to the Group/Joint Ventures/Suppliers/ Contractors/NGOs/Others?

The Policy covers the Company and all suppliers, sub suppliers, contractors and associates. 2. How many stakeholder complaints have been received in the past financial year and what percent was satisfactorily resolved by the management?

During 2016, the Company did not receive any complaints with regard to human rights. Principle 6: Environment 1. Does the policy related to Principle 6 cover only the Company or extends to the Group/Joint Ventures/Suppliers/Contractors/ NGOs/others.

The Policy covers the Company and all its vendors, contractors and associates. 2. Does the Company have strategies/ initiatives to address global environmental issues such as climate change, global warming, etc? Y/N. If yes, please give hyperlink for webpage etc.

Yes. http://www.nestle.com/csv/environmental-sustainability 3. Does the Company identify and assess potential environmental risks?

Yes. 4. Does the Company have any project related to Clean Development Mechanism? If so, provide details thereof, in about 50 words or so. Also, if yes, whether any environmental compliance report is filed?

Nestlé India has undertaken initiatives to reduce Green House Gas (GHG) emissions. In 2016, the Company identified 5,530 tonnes of GHG reduction which shall be fully realised in coming year. Some of the key renewable energy projects contributing to GHG savings include installation and commissioning of 300 KW solar plant at the Company’s Samalkha factory and other energy reduction projects. Yes, the Company files environment compliance reports as per Pollution Control Board requirements. 5. Has the Company undertaken any other initiatives on – clean technology, energy efficiency, renewable energy, etc. Y/N. If yes, please give hyperlink for web page etc.

Yes. https://www.nestle.in/csv/water-and-environmental-sustainability/protecting-environment/home 6. Are the Emissions/Waste generated by the Company within the permissible limits given by CPCB/SPCB for the financial year being reported?

Yes 7. Number of show cause/ legal notices received from CPCB/SPCB which are pending (i.e. not resolved to satisfaction) as on end of Financial Year.

During 2016, the Company did not receive any show cause/ legal notices from CPCB/SPCB which are pending as on end 2016. Principle 7: Policy Advocacy 1. Is your Company a member of any trade and chamber or association? If Yes, Name only those major ones that your business deals with:

(a) Federation of Indian Chambers of Commerce and Industry (FICCI) (b) Confederation of Indian Industry (CII)

2 Nestle AR 2016-17 070417.indd 88 4/7/2017 4:17:14 PM (c) All India Food Processors Association (AIFPA) (d) India Confectionary Manufacturer Association (ICMA) (e) PHD Chamber of Commerce and Industry (PHDCCI) 2. Have you advocated/lobbied through above associations for the advancement or improvement of public good? Yes/No; if yes specify the broad areas ( drop box: Governance and Administration, Economic Reforms, Inclusive Development Policies, Energy security, Water, Food Security, Sustainable Business Principles, Others):

Yes. Others: The Company engages with government, regulatory authorities and relevant public bodies for the development of public policies in keeping with the Company’s work in Society, sustainability and compliance commitments. These include Food Regulations, Environment and Plastic Packaging, among others. The Company engages with Government and Food Authorities to establish science- based regulations for protecting the health of consumers and ensuring fair practices in food trade and with the food authority for harmonisation of Indian food regulations with the Codex Alimentarius and other best practices. Principle 8: Inclusive Growth 1. Does the Company have specified programmes/initiatives/projects in pursuit of the policy related to Principle 8? If yes details thereof.

Yes. The Company works in the areas of nutrition awareness, rural development initiatives and dissemination of scientific and nutrition knowledge. Further details available: https://www.nestle.in/csv 2. Are the programmes/projects undertaken through in-house team/own foundation/external NGO/government structures/any other organization?

Projects are undertaken through in-house expert teams and in partnership with like-minded expert partner organisations that share the Company’s ambition towards creating inclusive growth. 3. Have you done any impact assessment of your initiative?

Yes 4. What is your Company’s direct contribution to community development projects- Amount in INR and the details of the projects undertaken?

These are detailed in ANNEXURE – 3 to the Board’s Report. 5. Have you taken steps to ensure that this community development initiative is successfully adopted by the community? Please explain in 50 words, or so.

These are detailed in ANNEXURE – 3 to the Board’s Report. Principle 9: Customer/ Consumer Value 1. What percentage of customer complaints/consumer cases are pending as on the end of financial year?

As on end 2016, the Company has no pending consumer complaints. 2. Does the Company display product information on the product label, over and above what is mandated as per local laws? Yes/ No/N.A. /Remarks(additional information)

Yes, over and above compliance with applicable product packaging and labelling requirements including declaration of appropriate method of preparation of products for safe and proper consumption, the Nestlé Nutritional Compass’ on the product pack provides transparent and easy to understand nutritional information that guides the consumer in making the right food choices. The Company has expanded the use of the Nestlé Nutritional Compass to include a QR (Quick Response) code to give consumers a gateway to useful, fact-based information. The Company also aims to provide consumers with nutrition information through Guideline Daily Amounts (GDA) based labels on front of pack. 3. Is there any case filed by any stakeholder against the Company regarding unfair trade practices, irresponsible advertising and/ or anti-competitive behaviour during the last five years and pending as on end of financial year. If so, provide details thereof, in about 50 words or so.

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The Company does not have any stakeholder complaints with regard to unethical or unfair trade practices, irresponsible advertising and/ or anti-competitive behaviour which are pending as at the end of 2016. 4. Did your Company carry out any consumer survey/ consumer satisfaction trends?

The Company continuously carries out consumer surveys to understand consumer feedback, product satisfaction and preference while measuring consumer response and satisfaction regularly through the Company’s continuous and periodic tracking studies, covering more than 35,000 consumers in 2016 through a random sampling approach among target consumers. @The Policies have been derived and adopted from the Nestlé Global policies and are aligned as per local requirements to safeguard the interests of all its stakeholders. * Notes 1 to 9 corresponding to Principles 1 to 9 Principle 1

1. http://www.nestle.in/investors 2. http://www.nestle.com/asset-library/documents/library/documents/corporate_governance/corporate-business-principles-en.pdf 3. http://www.nestle.com/csv/human-rights-compliance/corruption-bribery Principle 2

1. http://www.nestle.com/aboutus/suppliers 2. http://www.nestle.com/csv/water/supplier-engagement 3. http://www.nestle.com/asset-library/documents/library/documents/suppliers/appendix-supplier-code-english.pdf 4. http://www.nestle.com/csv/rural-development-responsible-sourcing/responsible-sourcing 5. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-responsible-sourcing- guidelines.pdf 6. http://www.nestle.com/asset-library/documents/creating-shared-value/responsible-sourcing/responsible-sourcing-guideline-water- requirements-august-2012.pdf 7. http://www.nestle.com/aboutus/quality-and-safety 8. http://www.nestle.com/asset-library/documents/library/documents/suppliers/quality_policy_nestle.pdf 9. http://www.nestle.com/ask-nestle/environment/answers/nestle-climate-change 10. http://www.nestle.com/csv/rural-development-responsible-sourcing/responsible-sourcing/deforestation 11. http://www.nestle.com/csv/rural-development-responsible-sourcing/nescafe-plan 12. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-rural-development-framework- update2015.pdf 13. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/natural-capital_soil-soilhealth.pdf 14. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-commitment-rural- development.pdf Principle 3

1. http://www.nestle.com/asset-library/documents/library/documents/about_us/policy-on-safety-and-health-at-work.pdf 2. http://www.nestle.com/asset-library/Documents/Library/Documents/People/Management-Leadership-Principles-EN.pdf 3. http://www.nestle.com/asset-library/documents/jobs/the_nestle_hr_policy_pdf_2012.pdf 4. http://www.nestle.com/Asset-Library/Documents/Library/Documents/People/Employee-relations-policy-EN.pdf 5. http://www.nestle.com/asset-library/documents/library/documents/people/nestle-policy-maternity-protection.pdf 6. http://www.nestle.com/csv/our-people/labour-relations# 7. http://www.nestle.com/csv/our-people/training-learning

2 Nestle AR 2016-17 070417.indd 90 4/7/2017 4:17:14 PM Principle 4

1. http://www.nestle.com/csv/water/policy-stewardship 2. http://www.nestle.com/csv/what-is-csv/stakeholder-engagement 3. http://www.nestle.in/csv/saanjhapan Principle 5

1. http://www.nestle.com/csv/human-rights-compliance 2. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-responsible-sourcing- guidelines.pdf 3. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-commitment-land-rights- agriculture.pdf 4. http://www.nestle.com/asset-library/documents/library/documents/suppliers/supplier-code-english.pdf 5. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-hria-white-paper.pdf 6. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-commitment-child-labour.pdf Principle 6

1. http://www.nestle.com/csv/environmental-sustainability 2. http://www.nestle.com/asset-library/documents/library/documents/environmental_sustainability/nestl%C3%A9%20policy%20on%20 environmental%20sustainability.pdf 3. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/commitment-on-climate- change-2013.pdf 4. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/commitment-on-biofuels-2013.pdf 5. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-commitment-water- stewardship.pdf 6. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/commitment-on-natural-capital-2013. pdf 7. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/natural-capital_soil-soilhealth.pdf 8. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/commitment-on-deforestation-2013. pdf Principle 7

1. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/the_nestl%C3%A9_policy_on_ transparent_interaction_wirh_authorities_and%20_organisations.pdf 2. http://www.nestle.com/csv/what-is-csv/public-policy 3. http://www.nestle.com/aboutus/businessprinciples/report-your-concerns 4. http://www.nestle.com/csv/what-is-csv/partnerships-alliances Principle 8

1. http://www.nestle.com/asset-library/documents/library/documents/people/management-leadership-principles-en.pdf 2. http://www.nestle.com/csv/rural-development-responsible-sourcing/rural-development-framework 3. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-commitment-rural- development.pdf 4. http://www.nestle.com/csv/water/supplier-engagement 5. http://www.nestle.com/csv/water/access-conservation

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Principle 9

1. http://www.nestle.com/asset-library/documents/library/documents/about_us/communication-principles.pdf 2. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-marketing-communication- children-policy.pdf 3. https://www.nestle.in/nhw/understanding-food-labels 4. https://www.nestle.in/nhw/understanding-food-labels/the-nestle-nutritional-compass 5. http://www.nestle.com/asset-library/documents/library/documents/about_us/nestle-policy-salt.pdf 6. http://www.nestle.com/asset-library/documents/library/documents/about_us/nestle-policy-sugars.pdf 7. http://www.nestle.com/asset-library/documents/library/documents/about_us/nestle-policy-saturated-fat.pdf 8. http://www.nestle.com/asset-library/documents/library/documents/corporate_social_responsibility/nestle-policy-micronutrient- fortification-foods-beverages.pdf 9. http://www.nestle.com/csv/nutrition/healthy-diet 10. http://www.nestle.com/csv/nutrition/nutritional-education 11. http://www.nestle.com/csv/nutrition/advertising-marketing

On behalf of the Board of Directors

Date : 15th February, 2017 Dr. Swati Piramal Suresh Narayanan Place : Gurgaon Chairperson – Corporate Social Chairman and Managing Director Responsibility Committee

2 Nestle AR 2016-17 070417.indd 92 4/7/2017 4:17:15 PM ANNEXURE - 5 TO THE BOARD’S REPORT FORM NO. MR-3 SECRETARIAL AUDIT REPORT FOR THE FINANCIAL YEAR ENDED 31st DECEMBER, 2016 [Pursuant to Section 204(1) of the Companies Act, 2013 and Rule No. 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014]

To, The Members, Nestlé India Limited CIN: L15202DL1959PLC003786 M-5A, Connaught Circus, New Delhi – 110001. We have conducted Secretarial Audit of compliance with the applicable statutory provisions and adherence to good corporate practices by Nestlé India Limited (hereinafter called ‘the Company’) for the Financial Year ended 31st December, 2016. Secretarial Audit was conducted in a manner that provided us a reasonable basis for evaluating the corporate conducts / statutory compliances and expressing our opinion thereon. Based on our verification of the Company’s books and papers, minute books, forms and returns filed and other records maintained by the Company and also the information provided by the Company, its officers, agents and authorized representatives during the conduct of Secretarial Audit, we hereby report that in our opinion, the Company has, during the audit period covering the Financial Year ended 31st December, 2016 complied with statutory provisions listed hereunder and also, that the Company has proper board-processes and compliance- mechanism in place to the extent, in the manner and subject to the reporting made hereinafter: We have examined the books and papers, minute books, forms and returns filed and other records maintained by the Company for the Financial Year ended 31st December, 2016 according to the provisions of: (i) The Companies Act, 2013 (‘the Act’) and the rules made thereunder; (ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder; (iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; (iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings – Provisions of Overseas Direct Investment and External Commerical Borrowings are not applicable. (v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’): a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015; c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 – Not applicable as the Company has not issued any shares during the year under review; d) The Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 – Not applicable as the Company has not issued any shares/options to directors/employees under the said guidelines/regulations during the year under review; e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 – Not applicable as the Company has not issued any debt securities during the year under review; f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client; – Not applicable as the Company is not registered as Registrar to an Issue and Share Transfer Agent during the year under review; g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 – Not applicable as the Company has not delisted / proposed to delist its equity shares during the year under review; and h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998 – Not applicable as the Company has not bought back / proposed to buy-back any of its securities during the year under review.

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(vi) The Company has identified and confirmed the following laws as being specifically applicable to the Company: a. Food Safety and Standards Act, 2006, rules and regulations thereunder; b. Legal Metrology Act, 2009, rules and regulations thereunder; c. Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 and rules thereunder (Local Infant Code); d. Agricultural Produce (Grading and Marketing) Act, 1937; e. Bureau of Indian Standards (BIS) Act, 1986; We have also examined compliance with the applicable clauses/regulations of the following: (i) Secretarial Standards with respect to Meetings of Board of Directors (SS-1) and General Meetings (SS-2) issued by The Institute of Company Secretaries of India; (ii) The Listing Agreement entered into with the BSE Limited and The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. During the period under review, the Company has complied with provisions of the Act, Rules, applicable Regulations, Guidelines, Standards etc. mentioned above. We further report that:

 The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors, Independent Directors and a Woman Director. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act;  Adequate notice is given to all Directors to schedule Board Meetings; agenda and detailed notes on agenda were sent atleast seven days in advance, and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting;  All the decisions of the Board and Committees thereof were carried through with requisite majority. We further report that based on review of compliance mechanism established by the Company and on the basis of the Compliance Certificate(s) issued by the Company Secretary and taken on record by the Board of Directors at their meeting(s), we are of the opinion that the management has adequate systems and processes commensurate with its size and operations, to monitor and ensure compliance with all applicable laws, rules, regulations and guidelines.  As informed, the Company has responded appropriately to notices received from statutory / regulatory authorities including by taking corrective measures wherever found necessary. We further report that during the review period, no major action having a bearing on the Company’s affairs in pursuance of the above referred laws, rules, regulations, guidelines, standards, etc. above have taken place.

For S. N. ANANTHASUBRAMANIAN & CO. Company Secretaries Firm Registration No.P1991MH040400

S. N. ANANTHASUBRAMANIAN Date : 7th February, 2017 Partner Place : Thane C.P. No: 1774

Note: This report is to be read with letter of even date by the Secretarial Auditors, which is annexed as Annexure A and Forms an integral part of this report.

2 Nestle AR 2016-17 070417.indd 94 4/7/2017 4:17:15 PM ‘Annexure A’

To, Members, Nestlé India Limited CIN: L15202DL1959PLC003786 M-5A, Connaught Circus, New Delhi -110001 Our Secretarial Audit Report of even date is to be read along with this letter. Management’s Responsibility

1. It is the responsibility of the management of the Company to maintain secretarial records, devise proper systems to ensure compliance with the provisions of all applicable laws and regulations and to ensure that the systems are adequate and operate effectively. Auditor’s Responsibility

2. Our responsibility is to express an opinion on these secretarial records, standards and procedures followed by the Company with respect to secretarial compliances. 3. We believe that audit evidence and information obtained from the Company’s management is adequate and appropriate for us to provide a basis for our opinion. 4. Wherever required, we have obtained the management’s representation about the compliance of laws, rules and regulations and happening of events, etc. Disclaimer

5. The Secretarial Audit Report is neither an assurance as to the future viability of the Company nor of the efficacy or effectiveness with which the management has conducted the affairs of the Company. 6. We have not verified the correctness and appropriateness of financial records and Books of Accounts of the Company

For S. N. ANANTHASUBRAMANIAN & CO. Company Secretaries Firm Registration No.P1991MH040400

S. N. ANANTHASUBRAMANIAN Date : 7th Feburary, 2017 Partner Place : Thane C.P. No: 1774

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ANNEXURE - 6 TO THE BOARD’S REPORT FORM NO. MGT 9 EXTRACT OF ANNUAL RETURN as on the financial year ended on 31st December, 2016 [Pursuant to Section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management & Administration) Rules, 2014] I. REGISTRATION & OTHER DETAILS:

1 CIN: L15202DL1959PLC003786 2 Registration Date 28th March, 1959 3 Name of the Company Nestlé India Limited 4 Category/Sub-category of the Company Public Company Limited by Shares 5 Address of the Registered office & contact details M-5A, Connaught Circus, New Delhi - 110001, India Ph.: 011-23418891 Fax.: 011-23415130 [email protected] 6 Whether listed company Yes 7 Name, Address & Contact details of the Registrar & Transfer Agent, if M/s Alankit Assignments Limited, any. 1E/13, Jhandewalan Extension, New Delhi - 110055 011-42541234, 011-23541234 [email protected] II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY

All the business activities contributing 10% or more of the total turnover of the company shall be stated:- Sl. No. Name and Description of main products / services NIC Code of the % to total turnover Product/service of the company 1 Milk Products and Nutrition 201, 209, 219 49.66 2 Prepared dishes and cooking aids 219 24.22 3 Beverages 209, 213, 214, 219 13.64 4 Chocolate and confectionery 209 12.48 III. PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANIES SI. No. Name and Address of the Company CIN/GLN Holding/ Subsidiary % of shares Applicable / Associate held Section 1 Nestlé S.A., Not Applicable Holding 34.28 2(87) Avenue Nestlé 55, CH-1800 Vevey, Switzerland 2 MAGGI Enterprises Limited, Zugerstrasse 8, Not Applicable Holding 28.48 2(87) CH-6330 Cham, Switzerland

2 Nestle AR 2016-17 070417.indd 96 4/7/2017 4:17:15 PM IV. SHAREHOLDING PATTERN (Equity Share Capital Break up as percentage of Total Equity) (i) Category-wise Shareholding

Category of Shareholders No. of Shares held at the beginning of the year No. of Shares held at the end of the year % Change Demat Physical Total % of Total Demat Physical Total % of Total during Shares Shares the year A. Promoters (1) Indian a) Individual/ HUF ------b) Central Govt ------c) State Govt(s) ------d) Bodies Corporate ------e) Banks / FI ------f) Any other ------Sub-total (A) (1) :------(2) Foreign ------a) NRIs- Individuals ------b) Other – individuals ------c) Bodies Corporate 60,515,079 - 60,515,079 62.76 60,515,079 - 60,515,079 62.76 0 d) Banks/ FI ------e) Any other…. ------Sub-total (A) (2) :- 60,515,079 - 60,515,079 62.76 60,515,079 - 60,515,079 62.76 0 Total shareholding of promoter (A) 60,515,079 - 60,515,079 62.76 60,515,079 - 60,515,079 62.76 0 = (A)(1)+(A)(2) B. Public Shareholding 1. Institutions a) Mutual Funds 873,314 11,090 884,404 0.92 1,521,728 11,090 1,532,818 1.59 0.67 b) Banks / FI 109,002 5,626 114,628 0.12 165,187 5,626 170,813 0.18 0.06 c) Central Govt. 32,897 - 32,897 0.03 104,512 - 104,512 0.11 0.08 d) State Govt(s) ------e) Venture Capital Funds ------f) Insurance Companies 4,138,907 100 4,139,007 4.30 4,707,478 100 4,707,578 4.88 0.58 g) FIIs 10,010,221 50 10,010,271 10.38 6,762,861 50 6,762,911 7.01 (3.37) h) Foreign Venture Capital Funds ------i) Others ------a) Foreign Portfolio Investor 4,316,651 - 4,316,651 4.48 6,035,617 - 6,035,617 6.26 1.78 Sub-total (B)(1):- 19,480,992 16,866 19,497,858 20.23 19,297,383 16,866 19,314,249 20.03 (0.20) 2. Non-Institutions a) Bodies Corp. i) Indian 2,024,060 11,060 2,035,120 2.11 2,444,583 10,461 2,455,044 2.55 0.44 ii) Overseas ------b) Individuals i) Individual shareholders holding 7,851,181 1,274,354 9,125,535 9.47 7,761,498 1,191,453 8,952,951 9.29 (0.18) nominal share capital upto ` 1 lakh

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Category of Shareholders No. of Shares held at the beginning of the year No. of Shares held at the end of the year % Change Demat Physical Total % of Total Demat Physical Total % of Total during Shares Shares the year ii) Individual shareholders holding 4,355,018 273,404 4,628,422 4.80 4,277,281 273,404 4,550,685 4.72 (0.08) nominal share capital in excess of ` 1 lakh c) Others Non - Resident Indians 604,981 4,579 609,560 0.63 622,186 4,379 626,565 0.65 0.02 Foreign Nationals 50 - 50 - 10 - 10 - 0.00 Overseas Corporate Body (OCB) 500 - 500 - 500 - 500 - 0.00 Trust 3,592 - 3,592 - 633 - 633 - 0.00 Sub-total (B)(2):- 14,839,382 1,563,397 16,402,779 17.01 15,106,691 1,479,697 16,586,388 17.21 0.20 Total Public Shareholding (B)=(B) 34,320,374 1,580,263 35,900,637 37.24 34,404,074 1,496,563 35,900,637 37.24 0.00 (1)+ (B)(2) C. Shares held by Custodian for ------GDRs & ADRs Grand Total (A+B+C) 94,835,453 1,580,263 96,415,716 100.00 94,919,153 1,496,563 96,415,716 100.00 0.00 (ii) Shareholding of Promoters- Sl. No. Shareholder’s Name Shareholding at the beginning of the Shareholding at the end of the year % change year in share No. of % of total %of Shares No. of % of total % of Shares holding Shares Shares Pledged / Shares Shares Pledged / during the of the encumbered of the encumbered year company to total shares company to total shares 1 Nestlé S.A. 33,051,399 34.28 - 33,051,399 34.28 - - 2 MAGGI Enterprises Limited 27,463,680 28.48 - 27,463,680 28.48 - - (iii) Change in Promoters’ Shareholding (please specify, if there is no change)

There are no changes in the Promoter’s shareholding during the Financial year 2016. (iv) Shareholding Pattern of top ten Shareholders (other than Directors, Promoters and Holders of GDRs and ADRs): S. Name of the shareholder Shareholding at the Date of Increase/ Reason Cumulative shareholding No. beginning of the year change of Decrease in during the year No. of % of total shareholding shareholding No. of % of total shares shares shares shares of the company 1 LIFE INSURANCE 2,763,936 2.87 1-Jan-16 - - 2,763,936 2.87 CORPORATION OF INDIA 15-Jan-16 16,997 Transfer 2,780,933 2.88 22-Jan-16 43,806 Transfer 2,824,739 2.93 29-Jan-16 58,332 Transfer 2,883,071 2.99 5-Feb-16 43,982 Transfer 2,927,053 3.04 12-Feb-16 11,229 Transfer 2,938,282 3.05 25-Feb-16 10,000 Transfer 2,948,282 3.06 4-Mar-16 57,142 Transfer 3,005,424 3.12 18-Mar-16 184,322 Transfer 3,189,746 3.31 25-Mar-16 934 Transfer 3,190,680 3.31 24-Jun-16 (5,237) Transfer 3,185,443 3.30 1-Jul-16 (3,116) Transfer 3,182,327 3.30

2 Nestle AR 2016-17 070417.indd 98 4/7/2017 4:17:16 PM S. Name of the shareholder Shareholding at the Date of Increase/ Reason Cumulative shareholding No. beginning of the year change of Decrease in during the year No. of % of total shareholding shareholding No. of % of total shares shares shares shares of the company 7-Jul-16 (15,000) Transfer 3,167,327 3.29 8-Jul-16 (26,490) Transfer 3,140,837 3.26 15-Jul-16 (122,852) Transfer 3,017,985 3.13 22-Jul-16 (64,830) Transfer 2,953,155 3.06 16-Sep-16 5,000 Transfer 2,958,155 3.07 23-Sep-16 24,385 Transfer 2,982,540 3.09 30-Sep-16 2,493 Transfer 2,985,033 3.10 7-Oct-16 2,322 Transfer 2,987,355 3.10 21-Oct-16 8,608 Transfer 2,995,963 3.11 18-Nov-16 84,782 Transfer 3,080,745 3.20 25-Nov-16 174,567 Transfer 3,255,312 3.38 2-Dec-16 25,507 Transfer 3,280,819 3.40 9-Dec-16 71,808 Transfer 3,352,627 3.48 31-Dec-16 - - 3,352,627 3.48 2 ARISAIG PARTNERS 1,833,651 1.90 1-Jan-16 - - 1,833,651 1.90 (ASIA) PTE LTD. A/C 29-Jan-16 (21,334) Transfer 1,812,317 1.88 ARISAIG INDIA FUND 5-Feb-16 (10,156) Transfer 1,802,161 1.87 LIMITED 12-Feb-16 (1,252) Transfer 1,800,909 1.87 31-Dec-16 - - 1,800,909 1.87 3 ABERDEEN GLOBAL 1,490,062 1.54 1-Jan-16 - - 1,490,062 1.55 INDIAN EQUITY 13-May-16 (80,000) Transfer 1,410,062 1.46 (MAURITIUS) LIMITED 3-Jun-16 (48,000) Transfer 1,362,062 1.41 10-Jun-16 (36,000) Transfer 1,326,062 1.38 1-Jul-16 (23,396) Transfer 1,302,666 1.35 7-Jul-16 (61,604) Transfer 1,241,062 1.29 19-Aug-16 (10,240) Transfer 1,230,822 1.28 26-Aug-16 (33,414) Transfer 1,197,408 1.24 9-Sep-16 (34,024) Transfer 1,163,384 1.21 30-Sep-16 (36,642) Transfer 1,126,742 1.17 7-Oct-16 (15,680) Transfer 1,111,062 1.15 31-Dec-16 - - 1,111,062 1.15 4 MIRA PRADEEP SINGH 632,100 0.66 1-Jan-16 - - 632,100 0.66 31-Dec-16 - - 632,100 0.66 5 FRANKLIN TEMPLETON 446,000 0.46 1-Jan-16 - - 446,000 0.46 INVESTMENTS FUNDS* 15-Apr-16 6,700 Transfer 452,700 0.47 29-Apr-16 115,100 Transfer 567,800 0.59 6-May-16 1,200 Transfer 569,000 0.59 12-May-16 40,000 Transfer 609,000 0.63 15-Jul-16 23,211 Transfer 632,211 0.66 22-Jul-16 19,789 Transfer 652,000 0.68 9-Dec-16 (50,216) Transfer 601,784 0.62 20-Dec-16 (6,200) Transfer 595,584 0.62 31-Dec-16 - - 595,584 0.62

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S. Name of the shareholder Shareholding at the Date of Increase/ Reason Cumulative shareholding No. beginning of the year change of Decrease in during the year No. of % of total shareholding shareholding No. of % of total shares shares shares shares of the company 6 AXIS MUTUAL FUND 303,564 0.31 1-Jan-16 - - 303,564 0.31 TRUSTEE LIMITED A/C 15-Jan-16 10,000 Transfer 313,564 0.33 AXIS MUTUAL FUND A/C 19-Feb-16 10,000 Transfer 323,564 0.34 AXIS LONG TERM EQUITY 15-Apr-16 10,000 Transfer 333,564 0.35 FUND* 20-May-16 50,000 Transfer 383,564 0.40 27-May-16 10,000 Transfer 393,564 0.41 10-Jun-16 20,000 Transfer 413,564 0.43 5-Aug-16 7,150 Transfer 420,714 0.44 9-Sep-16 10,000 Transfer 430,714 0.45 21-Oct-16 20,000 Transfer 450,714 0.47 31-Dec-16 - - 450,714 0.47 7 VANGUARD EMERGING 387,000 0.40 1-Jan-16 - - 387,000 0.40 MARKETS STOCK 15-Jan-16 (2,450) Transfer 384,550 0.40 INDEX FUND, A 22-Jan-16 (1,224) Transfer 383,326 0.40 SERIES OF VANGUARD 5-Feb-16 (4,250) Transfer 379,076 0.39 INTERNATIONAL EQUITY 12-Feb-16 (1,750) Transfer 377,326 0.39 INDEX FUND 26-Feb-16 (786) Transfer 376,540 0.39 3-Mar-16 (849) Transfer 375,691 0.39 11-Mar-16 940 Transfer 376,631 0.39 18-Mar-16 (2,096) Transfer 374,535 0.39 25-Mar-16 (3,418) Transfer 371,117 0.38 8-Apr-16 1,512 Transfer 372,629 0.39 22-Apr-16 860 Transfer 373,489 0.39 20-May-16 (360) Transfer 373,129 0.39 26-May-16 (48) Transfer 373,081 0.39 27-May-16 (6,366) Transfer 366,715 0.38 3-Jun-16 (8,114) Transfer 358,601 0.37 10-Jun-16 231 Transfer 358,832 0.37 24-Jun-16 4,136 Transfer 362,968 0.38 22-Jul-16 846 Transfer 363,814 0.38 29-Jul-16 2,538 Transfer 366,352 0.38 5-Aug-16 2,021 Transfer 368,373 0.38 15-Aug-16 2,070 Transfer 370,443 0.38 19-Aug-16 2,944 Transfer 373,387 0.38 9-Sep-16 1,320 Transfer 374,707 0.39 7-Oct-16 1,408 Transfer 376,115 0.39 14-Dec-16 968 Transfer 377,083 0.39 21-Oct-16 3,300 Transfer 380,383 0.39 28-Oct-16 1,320 Transfer 381,703 0.40 11-Nov-16 2,860 Transfer 384,563 0.40 25-Nov-16 3,476 Transfer 388,039 0.40 2-Dec-16 1,980 Transfer 390,019 0.40 31-Dec-16 - - 390,019 0.40

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2 Nestle AR 2016-17 070417.indd 100 4/7/2017 4:17:16 PM S. Name of the shareholder Shareholding at the Date of Increase/ Reason Cumulative shareholding No. beginning of the year change of Decrease in during the year No. of % of total shareholding shareholding No. of % of total shares shares shares shares of the company 8 BAJAJ ALLIANZ LIFE 332,354 0.34 1-Jan-16 - - 332,354 0.34 INSURANCE COMPANY 8-Jan-16 6,404 Transfer 338,758 0.35 LTD. 5-Feb-16 10,000 Transfer 348,758 0.36 12-Feb-16 (12,505) Transfer 336,253 0.35 26-Feb-16 1,000 Transfer 337,253 0.35 3-Mar-16 5,000 Transfer 342,253 0.35 11-Mar-16 (3,000) Transfer 339,253 0.35 18-Mar-16 5,000 Transfer 344,253 0.36 25-Mar-16 15,000 Transfer 359,253 0.37 1-Apr-16 (20,000) Transfer 339,253 0.35 15-Apr-16 (5,000) Transfer 334,253 0.35 22-Apr-16 (644) Transfer 333,609 0.35 29-Apr-16 (783) Transfer 332,826 0.35 6-May-16 5,000 Transfer 337,826 0.35 20-May-16 (5,000) Transfer 332,826 0.35 27-May-16 (12,709) Transfer 320,117 0.33 3-Jun-16 2,872 Transfer 322,989 0.33 10-Jun-16 (10,000) Transfer 312,989 0.32 17-Jun-16 3,550 Transfer 316,539 0.33 2-Sep-16 3,000 Transfer 319,539 0.33 30-Sep-16 13,000 Transfer 332,539 0.34 7-Oct-16 5,000 Transfer 337,539 0.35 21-Oct-16 (20,600) Transfer 316,939 0.33 4-Nov-16 5,550 Transfer 322,489 0.33 11-Nov-16 5,000 Transfer 327,489 0.34 23-Dec-16 7,841 Transfer 335,330 0.35 30-Dec-16 15,000 Transfer 350,330 0.36 31-Dec-16 - - 350,330 0.36 9 BRIGHT STAR 344,836 0.36 1-Jan-16 - - 344,836 0.36 INVESTMENTS PVT. LTD. 31-Dec-16 - - 344,836 0.36 10 HDFC STANDARD LIFE 362,090 0.38 1-Jan-16 - - 362,090 0.38 INSURANCE COMPANY 8-Jan-16 35,000 Transfer 397,090 0.41 LIMITED 15-Jan-16 43,000 Transfer 440,090 0.46 12-Feb-16 (7,440) Transfer 432,650 0.45 19-Feb-16 (43,000) Transfer 389,650 0.40 8-Apr-16 1,651 Transfer 391,301 0.41 29-Apr-16 (34) Transfer 391,267 0.41 13-May-16 444 Transfer 391,711 0.41 20-May-16 (1,178) Transfer 390,533 0.41 27-May-16 649 Transfer 391,182 0.41 3-Jun-16 (1,181) Transfer 390,001 0.40 17-Jun-16 68 Transfer 390,069 0.40

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S. Name of the shareholder Shareholding at the Date of Increase/ Reason Cumulative shareholding No. beginning of the year change of Decrease in during the year No. of % of total shareholding shareholding No. of % of total shares shares shares shares of the company 7-Jul-16 (8,527) Transfer 381,542 0.40 22-Jul-16 (34,459) Transfer 347,083 0.36 29-Jul-16 (43,763) Transfer 303,320 0.31 5-Aug-16 (81) Transfer 303,239 0.31 16-Sep-16 (618) Transfer 302,621 0.31 23-Sep-16 561 Transfer 303,182 0.31 30-Sep-16 11,586 Transfer 314,768 0.33 7-Oct-16 146 Transfer 314,914 0.33 4-Nov-16 (2,839) Transfer 312,075 0.32 11-Nov-16 928 Transfer 313,003 0.32 18-Nov-16 100 Transfer 313,103 0.32 25-Nov-16 2,000 Transfer 315,103 0.33 2-Dec-16 2,259 Transfer 317,362 0.33 23-Dec-16 34 Transfer 317,396 0.33 30-Dec-16 21 Transfer 317,417 0.33 31-Dec-16 - - 317,417 0.33 11 NATIONAL WESTMINSTER 541,768 0.56 1-Jan-16 - - 541,768 0.56 BANK PLC AS 18-Nov-16 (86,877) Transfer 454,891 0.47 DEPOSITARY OF FIRST 25-Nov-16 (111,354) Transfer 343,537 0.36 STATE GLOBAL EMERGING MARKETS 2-Dec-16 (80,331) Transfer 263,206 0.27 LEADERS FUND A SUB 9-Dec-16 (19,358) Transfer 243,848 0.25 FUND OF FIRST STATE 13-Dec-16 (297) Transfer 243,551 0.25 INVESTMENTS ICVC# 16-Dec-16 (14,402) Transfer 229,149 0.24 23-Dec-16 (10,691) Transfer 218,458 0.23 30-Dec-16 (27,298) Transfer 191,160 0.20 31-Dec-16 - - 191,160 0.20 12 VIRTUS EMERGING 329,724 0.34 1-Jan-16 - - 329,724 0.34 MARKETS 8-Jan-16 (29,714) Transfer 300,010 0.31 OPPORTUNITIES FUND# 15-Jan-16 (15,697) Transfer 284,313 0.29 22-Jan-16 (20,456) Transfer 263,857 0.27 29-Jan-16 (21,021) Transfer 242,836 0.25 5-Feb-16 (14,850) Transfer 227,986 0.24 12-Feb-16 (14,454) Transfer 213,532 0.22 19-Feb-16 (17,160) Transfer 196,372 0.20 25-Feb-16 (62,521) Transfer 133,851 0.14 4-Mar-16 (14,678) Transfer 119,173 0.12 11-Mar-16 (25,180) Transfer 93,993 0.10 18-Mar-16 (44,757) Transfer 49,236 0.05 25-Mar-16 (27,171) Transfer 22,065 0.02 31-Mar-16 (22,065) Transfer - 0.00 31-Dec-16 - - - 0.00

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2 Nestle AR 2016-17 070417.indd 102 4/7/2017 4:17:17 PM S. Name of the shareholder Shareholding at the Date of Increase/ Reason Cumulative shareholding No. beginning of the year change of Decrease in during the year No. of % of total shareholding shareholding No. of % of total shares shares shares shares of the company # 13 VONTOBEL INDIA FUND 316,546 0.32 1-Jan-16 - - 316,546 0.32 8-Jan-16 (28,527) Transfer 288,019 0.30 15-Jan-16 (15,070) Transfer 272,949 0.28 22-Jan-16 (19,639) Transfer 253,310 0.26 29-Jan-16 (20,182) Transfer 233,128 0.24 5-Feb-16 (14,258) Transfer 218,870 0.23 12-Feb-16 (13,877) Transfer 204,993 0.21 19-Feb-16 (16,474) Transfer 188,519 0.20 25-Feb-16 (60,020) Transfer 128,499 0.13 4-Mar-16 (14,090) Transfer 114,409 0.12 11-Mar-16 (24,173) Transfer 90,236 0.09 18-Mar-16 (42,968) Transfer 47,268 0.05 25-Mar-16 (26,085) Transfer 21,183 0.02 31-Mar-16 (21,183) Transfer 0 0.00 31-Dec-16 0 - 0 0.00 Note: The above information is based on the weekly beneficiary position received from depositories. * Not in the list of Top 10 shareholders as on 01/01/2016. The same has been reflected above since the shareholder was one of the Top 10 shareholders as on 31/12/2016. # Ceased to be in the list of Top 10 shareholders as on 31/12/2016. The same has been reflected above since the shareholder was one of the Top 10 shareholders as on 01/01/2016. (v) Shareholding of Directors and Key Managerial Personnel: Sl. For each of the Directors and Key Managerial Personnel Shareholding at the beginning Cumulative Shareholding No. of the year during the year No. of % of total shares of No. of % of total shares of shares the company shares the company 1 Mr. Shobinder Duggal At the beginning of the year 805 0.00 805 0.00 Transactions (Purchase/Sale) during the year: - - - - At the end of the year 805 0.00 805 0.00 2 Mr. B. Murli At the beginning of the year 1 0.00 1 0.00 Transactions (Purchase/Sale) during the year: - - - - At the end of the year 1 0.00 1 0.00 Note: Mr. Suresh Narayanan, Mr. Aristides Protonotarios, Mr. Rajya Vardhan Kanoria, Mr. AK Mahindra, Dr. Rakesh Mohan, Mr. Ravinder Narain and Dr. (Mrs.) Swati Ajay Piramal did not hold any shares during the year 2016.

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(V) INDEBTEDNESS Indebtedness of the Company including interest outstanding/ accrued but not due for payment (` in millions) Secured Loans Unsecured Deposits Total excluding deposits Loans Indebtedness Indebtedness at the beginning of the financial year i) Principal Amount 9.00 168.30 - 177.30 ii) Interest due but not paid - - - - iii) Interest accrued but not due - - - - Total (i+ii+iii) 9.00 168.30 - 177.30 Change in Indebtedness during the financial year • Addition - 163.6 - 163.6 • Reduction 9.00 0.4 - 9.40 Net Change (9.00) 163.2 - 154.2 Indebtedness at the end of the financial year i) Principal Amount - 331.5 - 331.5 ii) Interest due but not paid - - - - iii) Interest accrued but not due - - - - Total (i+ii+iii) - 331.5 - 331.5 VI. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL A. Remuneration to Managing Director, Whole-time Directors and/or Manager: (` in millions) Sl. Particulars of Remuneration Name of MD / WTD / Manager Total Amount No. Suresh Shobinder Aristides Narayanan Duggal Protonotarios 1 Gross salary (a) Salary as per provisions contained in section 17(1) of 56.49 14.93 24.68 96.10 the Income-tax Act, 1961 (b) Value of perquisites u/s 17(2) Income-tax Act, 1961 13.97 15.26 18.88 48.11 (c) Profits in lieu of salary under section 17(3) Income- tax - - - - Act, 1961 2 Stock Option - - - - 3 Sweat Equity - - - - 4 Commission - as of profit - - - - - others, (Commission) 17.44 7.32 18.75 43.51 5 Others, (Company’s contribution to PF) 2.25 1.46 1.08 4.80 Total (A) 90.15 38.97 63.39 192.52 Ceiling as per the Act Being 10% of the Net Profits of the Company calculated 1,440.2 as per Section 198 of the Companies Act, 2013

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2 Nestle AR 2016-17 070417.indd 104 4/7/2017 4:17:18 PM B. Remuneration to other directors: (` in millions) Sl. Particulars of Remuneration Name of Directors Total No. RV Kanoria AK Mahindra Rakesh Mohan1 Ravinder Narain Swati A Piramal Amount 1 Independent Directors Fee for attending board / 1.08 0.88 0.30 1.15 0.38 3.79 committee meetings Commission 0.65 0.65 0.43 0.65 0.65 3.03 Others, please specify ------Total (1) 1.73 1.53 0.73 1.80 1.03 6.82 2 Other Non-Executive Directors Fee for attending board / ------committee meetings Commission ------Others, please specify ------Total (2) ------Total (B)=(1+2) - - - - - 6.82 Total Managerial 199.34 Remuneration^ Overall Ceiling as per the Act Being 11% of the net Profits of the Company calculated as per Section 198 of the 1,584.22 Companies Act, 2013 1 Appointed as Independent Non-Executive Director with effect from 1st May, 2016. ^ Total remuneration to Chairman and Managing Director, Whole Time Directors and other Directors (being the total of A and B) C. REMUNERATION TO KEY MANAGERIAL PERSONNEL OTHER THAN MD / MANAGER / WTD (` in millions) Sl. Particulars of Remuneration Key Managerial Personnel No. B. Murli Total CS 1 Gross salary (a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961 12.29 12.29 (b) Value of perquisites u/s 17(2) Income-tax Act, 1961 9.86 9.86 (c) Profits in lieu of salary under section 17(3) Income-tax Act, 1961 - - 2 Stock Option - - 3 Sweat Equity - - 4 Commission - as of profit - - - others, Performance Bonus/Commission 4.77 4.77 5 Others, (Company’s contribution to PF) 1.13 1.13 Total 28.05 28.05 Note: Mr. Suresh Narayanan and Mr. Shobinder Duggal have been appointed as Key Managerial Personnel under Section 204 of the Companies Act, 2013. For details of their remuneration, please refer table VI A above. VII. PENALTIES / PUNISHMENT / COMPOUNDING OF OFFENCES

There were no penalties / punishment / compounding of offences under any sections of the Companies Act, 2013 against the Company or its Directors or other Officers in default, if any, during the year. On behalf of the Board of Directors

Date : 15th February, 2017 Suresh Narayanan Place : Gurgaon Chairman and Managing Director

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ANNEXURE – 7 TO THE BOARD’S REPORT Information as required under Section 134(3)(m) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules, 2014 forming part of Directors’ Report for the year ended 31st December, 2016 A CONSERVATION OF ENERGY (a) Steps taken or impact on Conservation of energy

Environmental sustainability is embedded in Nestlé Policy on Environmental Sustainability. As part of long term sustainability, your Company ensures that the products, packaging and operations are safe for employees, consumers and the environment. Your Company ensures this with a focus on technologies, processes and improvements that matter for the environment. At Nestlé, sustainability inspires and guides everything the Company does. Moreover, the Company gives highest priority to ensure environmental friendly practices at all factories and offices. These include reduction in power consumption, optimal water consumption and eliminating excess use of paper. As in the past, the Company continued to stress upon measures for the conservation and optimal utilisation of energy in all the areas of operations, including those for energy generation and effective usage of sources/ equipment used for generation. Within the Company there are continuous efforts towards improving the operational efficiencies, minimizing consumption of natural resources and reducing

water, energy & CO2 emissions while maximizing production volumes. During the year, approximately fifty energy reduction projects were undertaken by factories of the Company with the achievement of cost savings. Some of them are : • Optimization of steam consumption in four factories • LED lighting in the factories. • Heat recovery in air and ammonia compressors to pre-heat boiler make up water. • Energy recovery from air pre-heater of air heater. • Yield improvement of boilers. • Replacement of high pressure fans with energy efficient fans. • Improvement in steam condensate recovery. • Steam audit at two factories. • Replacement of pumps with energy efficient pumps. During the year, more than twenty five water reduction projects were completed in the factories. This inter alia resulted in reduction in water consumption and also reuse of recycled water in a more efficient manner. Some of the key initiatives contributing to water savings in 2016 are: • Increase in water recovery from Effluent Treatment Plant treated water by installing Reverse Osmosis Plant in one of the factories. • Reuse of reject water upto 739m3 by mixing tea fibers in one of the factories. • Recycling of Reverse Osmosis reject water by 2nd stage Reverse Osmosis. • Redesigning of CIP (Cleaning In Place) circuits for optimal water consumption • Optimizing the seal water consumption in process and usage in cooling towers in one of the factories. Apart from energy and water saving, your Company also initiated projects for reduction of pollution and protection of the environment. Some of the projects were: · Increase in usage of re-gasified Liquefied Natural Gas in Boilers. · Reduction of usage of bore well water and replacing it with recycled water. (b) Additional Investment

Following are the additional proposals which are initiated for implementation during 2017. • Heat pump installation for replacing process water heat exchanger in one of the factories • Installation of LED/Solar lighting. • Energy savings by installation of MVR (Mechanical Vapour Recompression) & IVOR (RO unit) in one of the factories for reduction in Steam and Furnace Oil consumption. • Installation of compressed air heat recovery unit to pre-heat boiler make up water

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2 Nestle AR 2016-17 070417.indd 106 4/7/2017 4:17:18 PM (c) Impact of the measures at (a) and (b) above for reduction of energy consumption and consequent impact on the cost of production of goods

During the years, at the factories there have been continuous efforts to improve operational efficiencies, minimizing consumption of

natural resources and reducing water, energy and CO2 emissions while maximizing production volumes. As a result, during the period from 2001 to 2016, for every ton of production, the Company has reduced the usage of energy by around 47%, water usage by around 53%, generation of waste water by around 55%, reduction in specific direct greenhouse gas emissions by 55%. (d) Projects planned or initiated for further improvement in Energy & Water consumption are: Energy initiatives planned or in progress:

Following are the additional proposals which are initiated for implementation during 2017. • Implementation of projects identified in the energy target setting at one of the factories. • Improvement in steam condensate recovery in the factories. • Replacement of steam ejector with vacuum pump at evaporators. • Replacement of high pressure fans with energy efficient fan in the factories. • Implementation of identified Do ItYourself (DIY) projects in 2017/2018. Water Initiatives planned or in progress:

The Company is consistently making efforts towards sustainability and water conservation measures for coming years especially in factories which are rated as water scarce. Few key initiatives planned or in progress are: • Recycling and reuse of evaporator condensate after passing through Reverse Osmosis plant in one of the factories. • Installation and commissioning of reverse osmosis system for reject water of drinking water reverse osmosis plant in one of the factories • Implementation of identified DIY projects in 2017/2018. (e) Description of the initiatives undertaken to reduce Green House Gases (GHG) emissions

Nestlé India had identified 5530 Tons of GHG reduction in 2016 which would be fully realized in coming years. Some ofthekey renewable energy projects contributed to GHG savings are: • Installation & commissioning of 300 KW solar power plant at one of the factories. • Contribution by energy reduction projects. In addition, projects are under implementation, which is expected to reduce an additional over 9300 Tons of GHG in coming years. B. TECHNOLOGY ABSORPTION

Efforts made in technology absorption are furnished below. Research and Development (R&D)

1. Specific areas in which R&D carried out by the Company. Your Company as a part of Nestlé Group and under the General Licence Agreement has access to and advantage of drawing from the extensive Central R&D efforts and activities of the Nestlé Group. Nestlé Group spends enormous amounts and efforts in R&D and in gaining industrial experiences. It has therefore been possible for your Company to focus its efforts on testing and modification of products for local conditions. Improving and maintaining the quality of certain key raw materials also continued to receive close attention. 2. Benefits derived as a result of the above R&D The ability to leverage the R&D expertise and knowledge of Nestlé Group, has helped your Company to innovate and renovate, manufacture high quality and safe products, improve yields, input substitution and achieve more efficient operations. Consequently the consumers perceive the products of your Company as a high value for their money.

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3. Future plan of action Steps are continuously being taken for innovation and renovation of products including new product development, improvement of packaging and enhancement of product quality / profile, to offer better products at relatively affordable prices to the consumers. 4. Expenditure on R&D Your Company benefits from the extensive Centralised R&D activity and expenditure of the Nestlé Group, at an annual outlay of over two billion Swiss Francs. Expenditure of the Company in the nature of Research and Development are those incurred locally, primarily relating to testing and modifying of products for local conditions and are as under: (` in millions) a) Capital 89.5 b) Recurring 211.4 c) Total 300.9 d) Total as a percentage of total turnover 0.33%

Technology absorption

1. Efforts, in brief, made towards technology absorption As a result of the Company’s ongoing access to the international technology from Nestlé Group, Switzerland, the Company absorbs and adapts the technologies on a continuous basis to meet its specific needs from time to time. 2. Benefits derived as a result of the above efforts Product innovation and renovation, improvement in yield, product quality, input substitution, cost effectiveness and energy conservation are the major benefits. 3. Imported Technology All the food products manufactured and / or sold by the Company are by virtue of the imported technology received on an ongoing basis from the collaborators. Technology transfer has to be an ongoing process and not a one-time exercise, for the Company to remain competitive and offer high quality and value for money products to the consumers. This has been secured by the Company under the General Licence Agreement with the collaborators and provides access for licence to use the technology and improvements thereof, for the product categories, manufactured / sold by the Company, on a continuous basis. C. FOREIGN EXCHANGE EARNINGS AND OUTGO (a) Activities relating to exports; initiatives taken to improve the exports; development of new export market for products and export plans: Members are requested to refer to the Board’s Report under the paragraph of “Exports”, for this information. (b) Total foreign exchange used and earned: During the year under review, your Company had earnings from exports of ` 6,557.2 million comprising foreign exchange earnings of ` 4,773.2 million and export to Nepal and Bhutan in Rupees amounting to ` 1,784.0 million. Foreign exchange outgo of ` 12,610 million: Details of earnings from exports and foreign exchange outgo on account of imports, expenditure on traveling, general licence fees, etc. and remittances made to non-resident shareholders on account of dividend are shown in Notes 43, 44, 45(a) and 46 respectively of Notes to the Accounts. Members are requested to refer to these Notes.

On behalf of the Board of Directors

Date : 15th February, 2017 Suresh Narayanan Place : Gurgaon Chairman and Managing Director

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2 Nestle AR 2016-17 070417.indd 108 4/7/2017 4:17:18 PM ANNEXURE - 8 TO THE BOARD’S REPORT Statement of Disclosure of Remuneration under Section 197 of the Companies Act, 2013 and Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. i. The ratio of the remuneration of each director to the median remuneration of the employees of the Company for the financial year: Name of Director Designation Ratio to median remuneration of the employees* Mr. Suresh Narayanan Chairman and Managing Director 101 : 1 Mr. Aristides Protonotarios Director – Technical 71 : 1 Mr. Shobinder Duggal Director – Finance & Control and CFO 44 : 1

* Employees for the above purpose includes all employees excluding employees governed under collective bargaining. ii. The % increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year: Designation Name of Employee % increase in remuneration Chairman and Managing Director Mr. Suresh Narayanan Not Comparable Director – Technical Mr. Aristides Protonotarios 16.0 Director – Finance & Control and CFO Mr. Shobinder Duggal 10.4 SVP – Legal and Company Secretary Mr. B. Murli 11.7 iii. The % increase in the median remuneration of employees in the financial year: 8.41%. iv. The number of permanent employees on the rolls of the Company: 7,588. v. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration: The median percentage increase made in the salaries of employees other than the managerial personnel was 8.41%, while the increase in the remuneration of managerial personnel was 11.7%. These increases are a function of the Company’s market competitiveness within its comparator group as ascertained through the detailed salary benchmarking survey the Company undertakes annually. The increase during the year reflects the Company’s reward philosophy as well as the results of the benchmarking exercise. vi. The key parameters for any variable component of remuneration availed by the directors: Variable Component is a critical element of Total Rewards and delivers value for employees who deliver tangible results for the business, against agreed targets. Employees including Key Managerial Personnel, Annual Short Term Bonus is linked to both Company and Individual Performance. vii. It is hereby affirmed that the remuneration is as per the Remuneration Policy of the Company.

On behalf of the Board of Directors

Date : 15th February, 2017 Suresh Narayanan Place : Gurgaon Chairman and Managing Director

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DIVIDEND DISTRIBUTION POLICY [Pursuant to Regulation 43(A) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.]

The equity shares of Nestlé India Limited (the ‘Company’) are listed on BSE Ltd., Mumbai. As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, the Company is required to formulate a Dividend Distribution Policy which shall be disclosed in its Annual Report and on its website. The Board of Directors of the Company (“the Board”) has approved the Dividend Distribution Policy of the Company (‘the Policy”) which endeavors for fairness, consistency and sustainability while distributing profits to the shareholders. The factors considered while arriving at the quantum of dividend(s) are:  Current year profits and outlook in line with the development of internal and external environment.  Operating cash flows and treasury position keeping in view the total debt to equity ratio.  Possibilities of alternate usage of cash, e.g. capital expenditure etc., with potential to create greater value for shareholders.  Providing for unforeseen events and contingencies with financial implications. The Board may declare interim dividend(s) as and when they consider it fit, and recommend final dividend to the shareholders for their approval in the general meeting of the Company. In case the Board proposes not to distribute the profit; the grounds thereof and information on utilisation of the undistributed profit, if any, shall be disclosed to the shareholders in the Annual Report of the Company. The dividend distribution shall be in accordance with the applicable provisions of the Companies Act, 2013, Rules framed thereunder, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other legislations governing dividends and the Articles of Association of the Company, as in force and as amended from time to time.

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